Strawn v. Afc Enterprises, Inc., Civ.A.G-99241.

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
Writing for the CourtKent
Citation70 F.Supp.2d 717
PartiesBarbara STRAWN v. AFC ENTERPRISES, INC. d/b/a Church's Chicken.
Docket NumberNo. Civ.A.G-99241.,Civ.A.G-99241.
Decision Date04 November 1999
70 F.Supp.2d 717
Barbara STRAWN
AFC ENTERPRISES, INC. d/b/a Church's Chicken.
No. Civ.A.G-99241.
United States District Court, S.D. Texas, Galveston Division.
November 4, 1999.

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Ted C Litton, Royston Rayzor Vickery and Williams, Houston, TX, for Ted C Litton, mediator.

Alton C Todd, Attorney at Law, Alvin, TX, for Barbara Strawn, plaintiff.

Gary Duane Sarles, Sarles and Ouimet, Dallas, TX, for AFC Enterprises Inc, dba Churchs Chicken, defendant.


KENT, District Judge.

On January 7, 1998, Plaintiff Barbara Strawn was allegedly injured in a slip and fall accident within the course and scope of her employment at Defendant's Church's Chicken restaurant in Alvin, Texas. She brought this suit as an original action in this Court, with jurisdiction founded on diversity of citizenship. Now before the Court is Defendant's Motion to Stay or Dismiss and to Compel Arbitration, brought pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. For the reasons set forth below, Defendant's Motion is DENIED.


Defendant AFC Enterprises, d/b/a Church's Chicken, is a non-subscriber to the Texas Workers' Compensation Act. Rather than provide workers' compensation insurance coverage, AFC established the America's Favorite Chicken Company Texas Employee Injury Benefit Plan (the "AFC Plan"). Under the AFC Plan, employees injured or killed in the course and scope of their employment are entitled to limited medical, wage-replacement and death benefits. Acting pursuant to the terms of the AFC Plan, Defendant has paid Plaintiff about $22,500 in wage-replacement benefits, and about $24,000 in medical benefits.

Defendant seeks to steer any and all disputes that may arise between an employee and AFC into binding arbitration. Defendant accomplishes this goal by requiring all prospective employees to sign the Value Deal Agreement as a condition of their employment. The Value Deal Agreement provides that "all claims and disputes Employee may presently have or may in the future have" against Defendant, expressly including "claims for bodily injury or physical, mental or psychological injury" must be submitted to binding arbitration. The parties do not dispute that Barbara Strawn signed the Value Deal Agreement on August 14, 1997.

The AFC Plan and the Value Deal Agreement work in tandem, each referencing the other. In particular, the AFC Plan is designed to provide a heightened level of benefits to employees who sign the Value Deal Agreement and agree to submit claims to an arbitral forum.

Of great significance to the following analysis, the AFC Plan provides minimal benefits, as compared to those available under the Texas Workers' Compensation Act. The differences between the benefits provided under the AFC Plan and the Workers' Compensation Act are striking. Under the Act, an employee is entitled to lifetime medical benefits, without limitation on amount. Under the AFC Plan, the employee is entitled to only 26 weeks of benefits, or 104 weeks of benefits if he has signed a Value Deal Agreement. Employees under the Act can recover a percentage of their wages based on their degree of medical impairment; no such benefits for impairment are provided under the AFC Plan. Under the Act, an employee could receive as much as 80% of his average wage for up to 401 weeks as long term wage replacement benefits; the AFC Plan has no such provision. For severe injuries, the Act provides for up to 75% of the pre-injury wage amount for life; the AFC Plan provides no such benefits. For workers killed in the course of their employment, the Act provides benefits at the same rate as lifetime benefits. The AFC Plan provides no death benefits at all unless the employee has signed a Value Deal

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Agreement, and then benefits are limited to twice the employee's pre-injury annual pay, up to an absolute maximum of $75,000.

Defendant does not really dispute that the AFC Plan provides minimal benefits as compared to those available under the Texas Workers' Compensation Act. Indeed, Defendant boldly asserts that a nonsubscribing employer is "not required to offer any benefits for on the job injuries" (emphasis added). According to Defendant, the sparse level of benefits under the AFC Plan is "consistent with Texas public policy, because AFC pays at least limited benefits without regard to fault." Defendant further argues that the combination of the limited benefits under the AFC Plan, coupled with the mandatory arbitration requirement of the Value Deal, is not contrary to public policy. In fact, Defendant goes so far as to claim that "AFC could have unilaterally imposed the Value Deal Agreement on its employees as a condition of employment without offering any benefits whatsoever."

II. The Analytical Standard

When adjudicating a motion to compel arbitration under the Federal Arbitration Act, the Court conducts a two step analysis. The first step has two sub-parts: the Court is to determine a) whether the parties agreed to arbitrate the dispute in question, and b) whether the dispute in question falls within the scope of the agreement to arbitrate. See Webb v. Investacorp, Inc., 89 F.3d 252, 257-58 (5th Cir.1996). The second step of the Webb analysis involves deciding "whether legal constraints external to the parties agreement foreclosed the arbitration of those claims." Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3355, 87 L.Ed.2d 444 (1985).

Because federal policy favors arbitration, when analyzing step 1(b), ambiguities as to the scope of the arbitration clause are to be resolved in favor of arbitration. See Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S.Ct. 1248, 1253, 103 L.Ed.2d 488(1989); Webb, 89 F.3d at 258. And because federal policy favors arbitration, parties can agree to arbitrate a wide variety of disputes. Consequently, an analysis of step 1(a) is likewise biased towards finding in favor of arbitrability. The Supreme Court has held that even disputes involving statutory rights can be arbitrable. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991). This conclusion is based on the principle that "by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial forum." Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. at 3354.

In keeping with the strong federal policy in favor of arbitration, many disputes about the enforceability of an arbitration clause are themselves to be resolved in an arbitral forum. Thus the fact that a party makes a credible showing of duress or fraud, or argues that an arbitration clause is unconscionable, may not be enough to prevent a Court from finding in favor of arbitration under step 1(a). See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04, 87 S.Ct. 1801, 1805-06, 18 L.Ed.2d 1270 (1967). Under the Prima Paint rule, if the complaint is directed against the contract as a whole, the enforceability of the arbitration provisions contained within the contract are to be decided by the arbitrator. See id. Thus under step 1(a), for a court to find an arbitration clause unenforceable, the dissatisfied party must confine his attack to the arbitration clause itself. See id. For example, if a party claims that the signature on an employment contract was obtained by fraud, the enforceability of an arbitration clause found within that employment contract is to be decided by the arbitrator, because the attack goes to

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the contract as a whole. But if the complaint is that the arbitration clause itself was obtained by fraud, then it is for a court, and not an arbitrator, to decide on the enforceability of the arbitration provision. See id.

While there is a strong federal policy in favor of arbitration, there are limits to this policy. The FAA by its own terms allows some arbitration agreements to be rendered unenforceable by neutral principles applicable to contracts generally. The FAA makes most arbitration agreements "valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (emphasis added). It is the second step of the Webb analytical framework which addresses this possibility. Notwithstanding the fact that an arbitration agreement is otherwise valid (Webb step 1(a)) and that the dispute is within the scope of the agreement (Webb step 1(b)), an arbitration agreement can still be invalidated under the second step of the Webb analytical framework due to "legal constraints external to the parties' agreement." See Webb, 89 F.3d at 257-58.

Thus there are two independent ways to attack the enforceability of an arbitration agreement which appears to cover the underlying dispute between the parties. A party can attack the arbitration clause under step 1(a), and if the complaint is directed at the arbitration clause in isolation, the court will decide if it is enforceable; whereas if the complaint is directed at the entire contract, an arbitrator will decide if it is enforceable. See Prima Paint, 388 U.S. at 402-04, 87 S.Ct. at 1805-06. Alternatively, a party can mount a more global challenge to the arbitration agreement under step 2, arguing, for example, that the agreement is void as against public policy. "Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [the FAA]." Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902 (1996).

III. Analysis
1) The Position of the Parties

The Defendant contends that the Value Deal...

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