J.M. Davidson, Inc. v. Webster, 01-0774.

CourtSupreme Court of Texas
Citation128 S.W.3d 223
Docket NumberNo. 01-0774.,01-0774.
PartiesJ.M. DAVIDSON, INC. v. Chelsey J. WEBSTER.
Decision Date31 December 2003

Myra K. Morris, Corpus Christi, Chester J. Makowski, Nathan Wesely, Houston, Royston Rayxor Vickery & Williams, for petitioner.

Richard Daniel Nielsen, Corpus Christi, for respondent.

Justice JEFFERSON delivered the opinion of the Court, joined by Chief Justice PHILLIPS, Justice HECHT, Justice OWEN, Justice WAINWRIGHT, and Justice BRISTER.

This is an interlocutory appeal of a trial court's order denying an employer's motion to compel arbitration under the company's alternative dispute resolution policy. We recently held that arbitration agreements between an employer and an at-will employee are enforceable when there is an agreement that is valid under traditional contract principles. In re Halliburton Co., 80 S.W.3d 566, 573 (Tex. 2002). Here, we consider whether an arbitration agreement between an employer and an employee is enforceable if the employer reserves the unilateral right to modify or terminate personnel policies without notice. The trial court denied the employer's motion to compel arbitration, and the court of appeals affirmed. 49 S.W.3d 507.

We conclude that the arbitration agreement is ambiguous because it is not possible to determine from the document itself whether the unilateral termination right applies to the parties' agreement to arbitrate, or only to "personnel policies" concerning the at-will employment relationship. Accordingly, we reverse the court of appeals' judgment and remand to the trial court for further proceedings consistent with this opinion.

I Background

J.M. Davidson, Inc. hired Chelsey Webster as a mechanic in December 1997. Soon after, Davidson asked Webster to sign a one-page document as a condition of his at-will employment. Webster signed the document, which provided:

J.M. Davidson, Inc.

ALTERNATIVE DISPUTE RESOLUTION POLICY

EMPLOYMENT APPLICATION LANGUAGE

I, the applicant whose signature is affixed hereto, and the above listed Company, (hereinafter referred to as the "Company"), for itself and all of its officers, directors, agents and employees, all of which mutually agree and contract that any and all claims, disputes or controversies, whether based on the Construction [sic], Statutes, Code(s), Ordinances, Rules, Orders Regulations, and/or common law of he [sic] United States and/or of any State, and/or all subdivisions, of either, and/or asserted on the basis of contract, quasi-contract, personal injury, tort, offenses, quasi-offenses or otherwise, or arising out of, or in any way relating to this application for employment, or any other application for employment that I may have previously submitted, or may submit in the future, or the Company's decision to hire or not to hire me; including the arbitrability of any claim, dispute or controversy shall be exclusively and finally settled by binding arbitration administered by, Conducted [sic] under the Arbitration Rules of, and before the Arbitrator(s) of an Arbitration Tribunal of the National Association for Dispute Resolution, Inc., pursuant to the provisions of the Federal Arbitration Act and/or any applicable Alternative Dispute Resolutions Act, whichever shall have the broadest effect, all claims of any rights to the contrary, including any right to trail [sic] by jury, being hereby expressly waived. The Arbitration Tribunal shall be the sole and existence [sic] of its jurisdiction over all parties and issues. Judgment upon any award may be entered in any Court—State or Federal—having jurisdiction.

I hereby certify that all of the information and statements made or furnished on this application are true and correct and I hereby grant the "Company" permission to verify such information and statements. I understand that any false statement or omission on this application may be considered as sufficient cause for rejection of this application, or for dismissal, if such false statement or omission is discovered subsequent to my employment. I further understand that the "Company" may perform a pre-employment investigation to determine my suitability for employment and I authorize the "Company" to have access to any and all records concerning my education or employment background. I hereby authorize any person or Entity having such information to release same to the "Company". I understand that the pre-employment investigation may include contacting my previous employers, and I hereby authorize such previous employers to release any and all information relating to my employment to the "Company". I understand that if I am extended an offer of employment, I will have to pass a physical examination as a condition of such employment. If employed, I agree to abide by and comply with all of the rules, policies and procedures of the "Company." I understand that if I am employed by the "Company", such employment will be "at-will" and that the "Company" may terminate my employment at any time and for any reason. I understand and agree that, in the event of my separation from any employment with the "Company", any and all information concerning my employment history may be furnished to any other employer with whom I seek employment and I hereby release and hold harmless the "Company", its affiliates, parents, subsidiaries, and successors, and its and their officers, directors, trustees, employees and agents from and against any and all claims and liability for furnishing such information. No supervisor or person other than the President of the "Company", can change or otherwise modify any employment agreement. The "Company" reserves the right to unilaterally abolish or modify any personnel policy without prior notice. I understand that this application will be considered valid and current for a period of not more than thirty (30) days.

In November 1998, Webster was injured at work and subsequently filed a workers' compensation claim. Although his condition improved temporarily, his doctor eventually placed him on "no work" status. Shortly thereafter, Webster's employment with Davidson ceased. The parties dispute whether Webster quit or was terminated.

Webster sued Davidson for wrongful termination under section 451 of the Texas Labor Code, alleging he was terminated in retaliation for filing a workers' compensation claim. See TEX. LAB. CODE § 451.001. Davidson denied Webster's allegations and filed a motion to compel binding arbitration under the company's alternative dispute resolution policy. Webster responded that the arbitration agreement was unenforceable because it was illusory, unconscionable, and lacked mutuality. Following a hearing, the trial court denied Davidson's motion without explanation.

Davidson then filed an interlocutory appeal seeking to compel arbitration under the Texas Arbitration Act, and a mandamus action to compel arbitration pursuant to the Federal Arbitration Act. The court of appeals denied the petition for writ of mandamus, held that the arbitration agreement was illusory, and affirmed the trial court's order denying Davidson's motion to compel arbitration. 49 S.W.3d 507, 514. One justice dissented, concluding that the arbitration agreement was enforceable because both parties mutually agreed to arbitrate workplace injury disputes. Id. at 519. The dissent observed that the reservation language—concerning the company's unilateral right to modify or terminate personnel policies without notice—did not render Davidson's promise illusory, because it was "separable" from the promise to arbitrate. Id. at 518.

Davidson asks us to reverse the court of appeals' judgment and order the trial court to stay the trial pending binding arbitration pursuant to the Texas Arbitration Act.1 See TEX. CIV. PRAC. & REM. CODE § 171.098.

II Standard of Review

A party attempting to compel arbitration must first establish that the dispute in question falls within the scope of a valid arbitration agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999). If the other party resists arbitration, the trial court must determine whether a valid agreement to arbitrate exists. Id.; TEX. CIV. PRAC. & REM. CODE § 171.021. The trial court's determination of the arbitration agreement's validity is a legal question subject to de novo review. In re Kellogg Brown & Root, 80 S.W.3d 611, 615 (Tex.App.-Houston [1st Dist.] 2002, orig. proceeding). If the trial court finds a valid agreement, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration. Oakwood, 987 S.W.2d at 573.

III Analysis

Although we have repeatedly expressed a strong presumption favoring arbitration, the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists. See, e.g., Prudential Secs., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex.1995); High Valley Homes, Inc. v. Fudge, 2003 WL 1882261, at *3 (Tex.App.-Austin April 17, 2003, no pet.) (memorandum opinion); see also Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002) (federal policy favoring arbitration does not apply to the determination of whether there is a valid agreement to arbitrate; instead, ordinary contract principles are applied). Arbitration agreements are interpreted under traditional contract principles. Jenkens & Gilchrist v. Riggs, 87 S.W.3d 198, 201 (Tex.App.-Dallas 2002, no pet.); Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 930 (Tex.App.-Houston [1st Dist.] 1996, no writ); see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (holding that, when deciding whether the parties agreed to arbitrate, "courts generally ... should apply ordinary state-law principles that govern the formation of contracts"). Thus, an employer attempting to enforce an arbitration agreement must show the agreement meets all requisite contract elements....

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