Jorge Lizalde v. Vista Quality Markets ( 2014 )

Case: 13-50015 Document: 00512572495 Page: 1 Date Filed: 03/25/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 13-50015 March 25, 2014
Lyle W. Cayce
JORGE LIZALDE, Clerk
Plaintiff – Appellee
v.
VISTA QUALITY MARKETS,
Defendant – Appellant
Appeal from the United States District Court
for the Western District of Texas
Before STEWART, Chief Judge, and JOLLY and SMITH, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
The defendant, Vista Quality Markets (“Vista”), the employer of the
plaintiff, appeals the judgment of the district court denying Vista’s motion to
compel arbitration of this on-the-job injury claim. The district court denied the
motion, agreeing with the plaintiff, Jorge Lizalde, that the Mutual Agreement
to Arbitrate Claims (the “Arbitration Agreement”) between him and Vista is
illusory because, as the district court interpreted the Arbitration Agreement,
it provided Vista the unrestrained right to unilaterally terminate the
Arbitration Agreement. We hold that the Arbitration Agreement is not illusory
under Texas law. We therefore REVERSE the judgment of the district court
and REMAND for the entry of an order compelling arbitration.
Case: 13-50015 Document: 00512572495 Page: 2 Date Filed: 03/25/2014
No. 13-50015
I.
Lizalde works for Vista as a meat-cutter. Pursuant to this employment,
Lizalde and Vista entered into two agreements that are relevant to this appeal:
the Arbitration Agreement, and the Employment Injury Benefit Plan (the
“Benefit Plan”).
In the Arbitration Agreement, the parties agreed to submit to an
arbitrator all claims which arise from “[a]ny injury suffered by Claimant while
in the Course and Scope of Claimant’s employment with Company.” The
Arbitration Agreement is terminable by Vista, but this termination ability has
some constraints. “Company shall have the right to prospectively terminate
[the Arbitration Agreement]. Termination is not effective for Covered Claims
which accrued or occurred prior to the date of the termination. Termination is
also not effective until ten (10) days after reasonable notice is given to
Claimant.” So by the terms of this termination provision in the Arbitration
Agreement, a termination by Vista is only effective ten days after notice has
been given to an employee and only as to prospective claims. Finally, the
Arbitration Agreement also contains a provision recognizing its connection
with the Benefit Plan. Specifically, the Arbitration Agreement states, “this
Agreement is presented in connection with Company’s [Benefit Plan].
Payments made under [the Benefit Plan] also constitute consideration for this
Agreement.”
As relevant to this appeal, the Benefit Plan itself also contains a
termination provision providing that Vista “may terminate [the Benefit Plan]
by executing and delivering to the Plan Administrator a notice of termination
specifying the date of termination.” Notably, this termination power under the
Benefit Plan is completely unconstrained. These two different termination
clauses present one of the complexities of this appeal.
2
Case: 13-50015 Document: 00512572495 Page: 3 Date Filed: 03/25/2014
No. 13-50015
Finally, Lizalde signed a document in which he acknowledged that upon
employment, he had received and read both the Arbitration Agreement and
the Benefit Plan.
II.
During the course of his employment with Vista, Lizalde suffered a slip-
and-fall accident. Lizalde filed this suit against Vista in Texas state court
alleging non-subscriber negligence and gross negligence claims as well as a
claim for discrimination and retaliation under the Employee Retirement
Income Security Act (“ERISA”). Vista removed the case to federal court on the
basis of federal question jurisdiction over the ERISA claim. Vista also
requested that the district court exercise supplemental jurisdiction over the
state law negligence and gross negligence claims. The district court denied
this request to exercise supplemental jurisdiction and remanded the state law
negligence and gross negligence claims.
In June 2012, Vista filed the motion to compel arbitration and stay
proceedings pending arbitration on the ERISA claim, the sole claim remaining
in federal court. Vista asserted that under the Arbitration Agreement,
Lizalde’s ERISA claim must be heard by an arbitrator. Lizalde opposed this
motion on the grounds that the Arbitration Agreement was illusory and
consequently not relevant.
In ruling on the motion, the district court agreed with Lizalde that the
Arbitration Agreement was illusory. Specifically, the district court held that
the Arbitration Agreement and the Benefit Plan were properly read together
as a single contract; and within that single contract, the district court held that
the unconstrained termination provision in the Benefit Plan applied to the
stand-alone Arbitration Agreement. Finally, the district court held that, under
Texas law, this unconstrained power to terminate at will rendered the
Arbitration Agreement illusory. Accordingly, the district court denied the
3
Case: 13-50015 Document: 00512572495 Page: 4 Date Filed: 03/25/2014
No. 13-50015
motion to compel arbitration. Vista then filed this interlocutory appeal
challenging the district court’s decision to deny arbitration under 9 U.S.C.
§ 16(a)(1)(A),(C). See also Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir.
2009) (“We have jurisdiction of this appeal even though the district court’s
denial of [the plaintiff’s] motion to compel arbitration is an interlocutory
ruling.”).
III.
On appeal, Vista challenges the district court’s holding that the
Arbitration Agreement was illusory. 1 First, Vista argues that the two
agreements – the Arbitration Agreement and the Benefit Plan – are not
properly read as a single contract, so the unconstrained termination provision
in the Benefit Plan does not apply to the Arbitration Agreement. Alternatively,
Vista argues that even if the Arbitration Agreement and the Benefit Plan are
read as one contract, the Benefit Plan termination provision still does not apply
to the Arbitration Agreement, which has its own properly constrained
termination provision. We agree with Vista that even if the two agreements
are read as one contract, the Arbitration Agreement cannot be terminated
without following the established procedural requirements, and consequently
is not illusory. We therefore need not decide the first issue because we will
assume, as Lizalde urges, that the two agreements are properly construed as
a single contract and move on to interpreting that contract.
A.
We review the grant or denial of a motion to compel arbitration de novo.
Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002).
To determine whether an agreement to arbitrate is contractually valid, courts
1The parties briefed a second issue – whether the court or an arbitrator should decide
whether the Arbitration Agreement was illusory – but Vista conceded at oral argument that
the court is the proper decision maker on this issue.
4
Case: 13-50015 Document: 00512572495 Page: 5 Date Filed: 03/25/2014
No. 13-50015
apply “ordinary state-law principles that govern the formation of contracts.”
Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008).
Both parties agree that Texas law governs the contract in this case.
Under Texas law, “[a]n agreement to arbitrate, like other contracts, must also
be supported by consideration.” Mendivil v. Zanios Foods, Inc., 357 S.W.3d
827, 831 (Tex. App. – El Paso 2012). Thus, “when a purported bilateral
contract is supported only by illusory promises, there is no contract.” Id. at
832. As it relates specifically to arbitration agreements, the “[m]utual
agreement to arbitrate claims provides sufficient consideration to support an
arbitration agreement.” In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010).
Where one party has the unrestrained unilateral authority to terminate its
obligation to arbitrate, however, the agreement understandably is illusory. See
id. at 567 (“An arbitration clause is not illusory unless one party can avoid its
promise to arbitrate by amending the provision or terminating it altogether.”).
This is not to say that if a party retains any ability to terminate the agreement,
the agreement is illusory. Instead, retaining termination power does not make
an agreement illusory so long as that power 1) extends only to prospective
claims, 2) applies equally to both the employer’s and employee’s claims, and 3)
so long as advance notice to the employee is required before termination is
effective. In re Halliburton Co., 80 S.W.3d 566, 569–70 (Tex. 2002).
B.
Applying these Texas contract law principles to this case, it certainly
seems clear that the Arbitration Agreement is not illusory unless the
termination provision found in the Benefit Plan applies to the Arbitration
Agreement. Stated differently, termination of the Arbitration Agreement is
restricted to prospective claims, does not apply to claims which accrued prior
to termination, and is not effective until ten days after reasonable notice is
given to the employee. Under Texas law, this termination provision, if it
5
Case: 13-50015 Document: 00512572495 Page: 6 Date Filed: 03/25/2014
No. 13-50015
applies here, limits the power to terminate the arbitration obligation in a way
that does not render the Arbitration Agreement illusory and consequently,
makes the Arbitration Agreement enforceable. See id.
This conclusion does not decide the case, however. Assuming, as Lizalde
argues, that the Benefit Plan and the Arbitration Agreement are properly
considered as a single contract, we must examine whether the termination
provision found in the Benefit Plan applies to the stand-alone Arbitration
Agreement. If it does – as the district court held it did, and as Lizalde argues
– the Arbitration Agreement would be illusory because it could be terminated
at will and unilaterally by Vista. See In re 24R, 324 S.W.3d at 567. Whether
the Arbitration Agreement is illusory therefore turns on whether the
termination provision of the Benefit Plan also applies to the Arbitration
Agreement. We now turn to this inquiry.
C.
We lay the foundation to this question by assuming that the Arbitration
Agreement and Benefit Plan make up a single contract. A review of the Texas
authorities convinces us that even when the two documents are considered as
a single contract, this does not compel a holding that the termination provision
found in the Benefit Plan also applies to the Arbitration Agreement.
When several documents represent one agreement, all must be
construed together in an attempt to discern the intent of the
parties, reconciling apparently conflicting provisions and
attempting to give effect to all of them, if possible. . . . That does
not necessarily require that every provision in each document
applies equally to all other documents being considered.
Richland Plantation Co. v. Justiss-Mears Oil Co., Inc., 671 F.2d 154, 156 (5th
Cir. 1982) (internal citations omitted). This statement reflects the general goal
of contract interpretation under Texas law: determining the intent of the
parties. Frost Nat. Bank v. L&F Distributors, Ltd., 165 S.W.3d 310, 311–12
6
Case: 13-50015 Document: 00512572495 Page: 7 Date Filed: 03/25/2014
No. 13-50015
(Tex. 2005) (“In construing a contract, we must ascertain and give effect to the
parties’ intentions as expressed in the document.”).
Looking at the two agreements in this case, we see no indication that the
parties intended the broader termination provision found in the Benefit Plan
to also apply to the Arbitration Agreement. Here, the Arbitration Agreement
is specifically crafted to provide a narrowly-tailored termination clause that
ensures its enforceability; this deliberate wording makes it difficult to accept
that the parties intended for the unconstrained termination provision found in
the Benefit Plan to apply to the Arbitration Agreement. Additionally, applying
the Benefit Plan termination provision to the Arbitration Agreement would
render the termination provision found in the Arbitration Agreement
superfluous, an outcome disfavored by Texas contract law. See J.M. Davidson,
Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (“To [ascertain the intentions
of the parties], we must examine and consider the entire writing in an effort to
harmonize and give effect to all the provisions of the contract so that none will
be rendered meaningless.”).
This view is further supported by the plain language of the two
termination provisions. The termination provision found in the Arbitration
Agreement explicitly states that Vista “shall have the right to prospectively
terminate this Agreement” (emphasis added). Similarly, the termination
provision found in the Benefit Plan states that Vista “may terminate this Plan”
(emphasis added) unilaterally. In both cases then, the termination provisions
clearly demarcate their respective applications.
To summarize, the parties included a termination provision in the
Arbitration Agreement that constrained Vista’s power to terminate the
agreement; the termination provisions found in the Arbitration Agreement and
the Benefit Plan expressly state that they apply only to the agreement or plan
in which they are found; and applying the Benefit Plan to the Arbitration
7
Case: 13-50015 Document: 00512572495 Page: 8 Date Filed: 03/25/2014
No. 13-50015
Agreement would render the termination provision in the Arbitration
Agreement superfluous. These considerations are completely convincing to us
that the parties did not intend for the termination provision in the Benefit Plan
to apply to the Arbitration Agreement. Because Vista’s power to terminate the
Arbitration Agreement is properly constrained, the Arbitration Agreement is
not illusory and is enforceable under Texas law.
IV.
In this opinion, we hold that even if the Benefit Plan and the Arbitration
Agreement are properly considered as part of a single contract, the termination
provision found in the Benefit Plan does not apply to the Arbitration
Agreement. Accordingly, the Arbitration Agreement is not illusory. We
therefore REVERSE the decision of the district court, and REMAND the case
for the district court to enter an order compelling arbitration.
REVERSED and REMANDED.
8