In Re READYONE INDUSTRIES, INC. , 2012 Tex. App. LEXIS 10652 ( 2012 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
§
§
IN RE: READYONE INDUSTRIES, § No. 08-12-00121-CV
INC.,
§ AN ORIGINAL PROCEEDING
§ IN MANDAMUS
§
OPINION
In this original proceeding, ReadyOne Industries, Inc. seeks mandamus relief from the trial
court’s order permitting discovery on the arbitrability of an agreement between ReadyOne and its
employee, Margaret Simental (“Simental”), governing work-related injuries. ReadyOne
contends that the trial court erred in deciding that the Franken Amendment1 might apply to
Simental’s negligence cause of action and that Simental established the facts necessary to raise a
reasonable expectation that the arbitration agreement was unenforceable. Concluding that the
Franken Amendment is inapplicable in a personal injury suit and that Simental failed to provide a
colorable or reasonable basis for believing that discovery would materially aid her in establishing
her defenses to the validity of an arbitration agreement, we conditionally grant mandamus relief.
FACTUAL AND PROCEDURAL BACKGROUND
Alleging that she sustained an on-the-job injury, Simental sued ReadyOne for negligence.
After filing an answer, ReadyOne moved to compel arbitration pursuant to an agreement requiring
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Section 8116 of the Department of Defense Appropriations Act of 2010 is known as the Franken Amendment
because of its author, Senator Al Franken of “Saturday Night Live” fame.
that claims of on-the-job injuries be submitted to binding arbitration. In response, Simental
moved for limited discovery on the issue of arbitrability to “develop [her] case and defend against
[ReadyOne’s] contentions that a valid arbitration agreement exists[,] . . . [and] . . . to develop or
inquire into any factual issues that may preclude or discredit the existence of a valid arbitration
agreement.”
At the hearing on these matters, Simental argued that discovery was required as to the
validity of the arbitration agreement because her affidavit, attached to the response to ReadyOne’s
motion to compel arbitration, raised concerns about fraudulent inducement and meeting of the
minds. Simental also argued that her claims against ReadyOne are not arbitrable because the
Franken Amendment prevents federal contractors from enforcing agreements to arbitrate tort
claims related to or arising out of negligent hiring, supervision, or retention. ReadyOne
countered that the Franken Amendment is not applicable to torts related to or arising out of
negligent hiring, supervision, or retention in a personal injury suit because the Amendment applies
only to title VII claims or torts related to or arising out of sexual assault or harassment.
After considering the parties’ arguments, the trial court ordered limited discovery on the
applicability of the Franken Amendment, fraudulent inducement, and meeting of the minds. With
respect to the applicability of the Franken Amendment, Simental was permitted to discover if
ReadyOne has federal contracts in excess of $1 million and if ReadyOne manufactures items
commercially available off-the-shelf.
MANDAMUS
To obtain mandamus relief from the trial court’s discovery order, ReadyOne must meet
two requirements. ReadyOne must show that the trial court clearly abused its discretion and that
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it has no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36
(Tex. 2004).
A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to
amount to a clear and prejudicial error of law, or if it clearly fails to analyze or apply the law
correctly. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005). A trial court
has the discretion to order pre-arbitration discovery if it lacks sufficient information regarding the
scope of an arbitration provision or other issues of arbitrability, such as a defense to arbitration.
In re Houston Pipe Line Co., 311 S.W.3d 449, 451 (Tex. 2009)(orig. proceeding). Although the
scope of discovery is within the trial court’s discretion, the trial court must make an effort to
impose reasonable discovery limits. In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003).
Accordingly, discovery requests must be reasonably tailored to include only matters relevant to the
case. In re Am. Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998). Because discovery is limited
to matters that are relevant to the case, requests for information that are not reasonably tailored as
to time, place, or subject matter amount to impermissible “fishing expeditions.” See CSX Corp.,
124 S.W.3d at 152. Accordingly, an order that compels production of patently irrelevant matters
is an abuse of discretion. Id. at 153.
A relator has no adequate remedy by appeal if the appellate court is unable to cure the trial
court’s discovery error. Walker v. Packer, 827 S.W.2d 833, 843 (Tex. 1992). This occurs when
the trial court erroneously “compels the production of patently irrelevant . . . documents, such that
it clearly constitutes harassment or imposes a burden on the producing party far out of proportion
to any benefit that may obtain to the requesting party.” Id. In such a situation, mandamus is the
proper remedy. Id.
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THE FRANKEN AMENDMENT
In its first issue, ReadyOne argues that the trial court erred by ordering discovery regarding
the applicability of the Franken Amendment because, on its face, the Amendment is inapplicable,
and even if applicable, does not bar enforcement of the arbitration agreement. ReadyOne thus
insists that the trial court abused its discretion by requiring discovery into patently irrelevant
matters. We agree.
Applicable Law
Our analysis of whether the Franken Amendment applies in this case turns on a question of
statutory construction. A question of statutory construction is a legal one that we review de novo.
Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009). When construing
statutes, we ascertain and give effect to the legislature’s intent. Id. We do so by looking first and
foremost at the statutory text, reading the words and phrases in context and construing them
according to the rules of grammar and common usage. Id.; Lexington Ins. Co. v. Strayhorn, 209
S.W.3d 83, 85 (Tex. 2006); TEX.GOV’T CODE ANN. § 311.011 (West 2005). Where statutory
text is clear, it is determinative of legislative intent unless the plain meaning of the statute’s text
would produce an absurd result. Entergy, 282 S.W.3d at 437.
Several canons of statutory construction are helpful in guiding our analysis. Under the
doctrine of ejusdem generis, when general words in a statute follow specific examples, the general
words are to be restricted in their meaning to a sense analogous to the same kind or class as those
expressly mentioned. City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003).
Likewise, according to the maxim noscitur a sociis (associated words), when general and specific
words are grouped together in a statute, the general words are limited by the specific and will be
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construed to embrace only objects similar in nature to those things identified by the specific words.
Id. Similarly, the last antecedent rule states that a qualifying phrase in a statute must be confined
to the words and phrases immediately preceding it to which it may, without impairing the meaning
of the sentence, be applied. Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 581 (Tex. 2000).
Discussion
1. Abuse of Discretion
With these principles in mind, we have scrutinized the Franken Amendment to determine
whether personal injury claims related to or arising out of negligent hiring, supervision, or
retention fall within its parameters. We conclude that they do not.
In relevant part, the Franken Amendment provides:
(a) None of the funds appropriated or otherwise made available by this Act may be
expended for any Federal contract for an amount in excess of $1,000,000 that is
awarded more than 60 days after the effective date of this Act, unless the contractor
agrees not to:
. . .
(2) take any action to enforce any provision of an existing agreement with an
employee or independent contractor that mandates that the employee or
independent contractor resolve through arbitration any claim under title VII of the
Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or
harassment, including assault and battery, intentional infliction of emotional
distress, false imprisonment, or negligent hiring, supervision, or retention.
Pub. L. 111-118, § 8116, 123 Stat. 3409, 3454-55 (2009). By regulation, the Amendment “does
not apply to the acquisition of commercial items (including commercially available off-the-shelf
items).” 48 C.F.R. § 222.7403 (West 2010).
The dispute here centers on the meaning of the clause “any claim under title VII of the
Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment,
including assault and battery, intentional infliction of emotional distress, false imprisonment, or
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negligent hiring, supervision, or retention.” [Emphasis added]. ReadyOne asserts that “the list
of generic torts following ‘including’ are not additional torts to which the arbitration prohibition
would apply,” but are “simply a descriptive list of some of the type of torts that could arise out of
sexual assault or harassment.” Simental, on the other hand, posits that, when read in the
disjunctive, the conjunction “or” serve to identify the types of claims to which the Amendment
applies and to cast them as claims independent of one another. Thus, according to Simental, the
phrase “or negligent hiring, supervision, or retention” is independent of and does not modify the
phrase “any tort related to or arising out of sexual assault or harassment, including . . . .” We
disagree.
When identifying the types of claims not subject to arbitration, the Amendment begins by
listing title VII claims, followed by the clause “or any tort related to or arising out of sexual assault
or harassment,” which in turn is followed by the adjectival phrase “including assault and battery,
intentional infliction of emotional distress, false imprisonment . . . .” The concluding phrase “or
negligent hiring, supervision, or retention” immediately follows the beginning of the adjectival
phrase identifying torts that fall in the class of claims related to or arising out of sexual assault or
harassment. Applying the doctrine of ejusdem generis in conjunction with the maxim noscitur a
sociis and the last antecedent rule, we conclude that the phrase “or negligent hiring, supervision, or
retention” refers only to claims “such like” the class of claims immediately preceding the use of
the present participle “including,” i.e., torts related to or arising out of sexual assault or
harassment. This is because negligent hiring, negligent supervision, and negligent retention are
torts analogous to those expressly mentioned as the type of torts that could arise out of sexual
assault or harassment – assault and battery, intentional infliction of emotional distress, and false
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imprisonment. Furthermore, because all of these torts are similar in nature, are grouped together,
and follow the word “including,” which precedes the phrase “any tort related to or arising out of
sexual assault or harassment,” they qualify the phrase and are therefore confined to it.
Accordingly, the phrase “or negligent hiring, supervision, or retention” was not intended to define
a category of claims separate and apart from title VII claims or torts related to or arising out of
sexual assault or harassment.
As noted above, Simental argues that because the various types of claims and torts
identified in the disputed clause are separated by the disjunctive “or,” they should be construed as
alternative claims, separate from and independent of one another. However, the structure and
composition of the statutory text belie this argument and compel the conclusion that “negligent
hiring, supervision, or retention” are not claims separate from and independent of the other
non-arbitrable claims identified in the statute. If Simental is correct that the phrase “or negligent
hiring, supervision, or retention” identifies the third element in a list of three items, then a comma
would have been placed between the conjunction “or” separating the phrases “any claim under title
VII” and “any tort related to or arising out of sexual assault or harassment” to identify each of the
three members in the series. The fact that the conjunction “or” between the phrases identifying
title VII claims and sexual assault claims is not separated by a comma indicates that there are no
more than two elements identified in the list of claims not subject to arbitration. Indeed, the use of
the comma before the conjunction “or” to separate the phrase “assault and battery, intentional
infliction of emotional distress, false imprisonment” from “negligent hiring, supervision, or
retention” denotes that the drafters of the Amendment used it as a serial comma to identify the
disputed phrase as the final item in the list of the torts encompassing sexual assault and
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harassment. According to the Oxford Style Manual, “[t]he [use of a serial comma] serves . . . to
resolve ambiguity, particularly when any of the items are compound terms joined by a
conjunction.” OXFORD STYLE MANUAL, Oxford University Press, 2002, p. 122 [Emphasis
added].
Because the Franken Amendment does not apply to personal injury claims related to or
arising out of negligent hiring, supervision, or retention, we hold that the trial court abused its
discretion by ordering discovery concerning the applicability of the Franken Amendment to the
arbitrability of Simental’s personal injury claims.
2. Inadequate Remedy by Appeal
As established above, Simental seeks documents from ReadyOne to determine if it has
federal contracts in excess of $1 million and if it manufactures items commercially available
off-the-shelf. This information is targeted to discover if ReadyOne is bound by the requirements
of the Franken Amendment. Justification for the discovery of this information, however, requires
that the type of claim alleged by Simental – a negligence claim in a non-subscriber personal injury
case – fall within the parameters of the Amendment. Because this type of claim is not
encompassed by the Amendment, the discovery of the information ordered by the trial court is
irrelevant and is therefore unduly harassing and burdensome. Such an error cannot be cured by
ordinary appeal. See Walker, 827 S.W.2d at 843. Accordingly, we hold that ReadyOne has no
adequate remedy by appeal.
DISCOVERY ON DEFENSES TO ARBITRATION
In its second and final issue, ReadyOne contends that “[t]he trial court abused its discretion
in ordering discovery concerning fraudulent inducement and meeting of the minds because
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[Simental] failed to raise a reasonable expectation that discovery would reveal the arbitration
agreement to be unenforceable.” We agree.
Applicable Law
The law favors arbitration. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001).
Therefore, the party seeking to avoid arbitration bears the burden of proving a defense against
arbitration. Id. To be entitled to pre-arbitration discovery on a particular defense, the party
opposing arbitration must show or provide a colorable basis or reason to believe that the discovery
requested is material in establishing the defense. See Barron v. Vanier, 190 S.W.3d 841, 849-50
(Tex.App.--Fort Worth 2006, no pet.)(holding that it is an abuse of discretion to deny additional
jurisdictional discovery if movant shows that “further discovery might demonstrate facts sufficient
to constitute a basis for jurisdiction” or “makes a good-faith showing, provides a colorable basis
for, or makes a prima facie case of personal jurisdiction, or provides a reason to believe that
discovery would reveal sufficient minimum contacts).; Solgas Energy Ltd. v. Global Steel
Holdings Ltd., No. 04-06-00731-CV, 2007 WL 1892206, at *6-7 (Tex.App.--San Antonio July 3,
2007, no pet.)(mem. op.)(holding that trial court did not abuse its discretion in determining that
plaintiff’s alter ego allegation did not entitle it to pursue additional discovery in an effort to
establish an alter ego connection because plaintiff’s pleadings and evidence failed to show or
provide a colorable basis for believing that further discovery might demonstrate facts sufficient to
constitute a basis for jurisdiction).
Discussion
1. Abuse of Discretion
Simental failed to show or provide a colorable basis or reason to believe that discovery
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would be material in establishing that the arbitration agreement was invalid because she was
fraudulently induced to sign it and because there was no meeting of the minds. In her response to
ReadyOne’s motion to compel arbitration, Simental alleged that ReadyOne fraudulently induced
her to sign the arbitration agreement because ReadyOne failed to identify and explain the
arbitration agreement to her, and that ReadyOne’s failure to do so “indicates that there was no
‘meeting of the minds’ as to the arbitration agreement.” In support of these allegations, Simental
submitted her affidavit. However, nothing in Simental’s affidavit indicates that ReadyOne made
a fraudulent representation that the documents she was asked to sign did not contain an arbitration
provision or that the arbitration provision was something else. An essential element of fraudulent
inducement is a material representation that is false. Formosa Plastics Corp. USA v. Presidio
Eng’r & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). Simental simply stated in her
affidavit that she “was given a few documents to sign during [her] brief orientation,” that she “was
only given signature pages and was not explained what the documents related to,” and that she
“assumed the documents related to [her] W-2 tax forms . . . .” This testimony does not constitute
evidence of fraud in connection with the existence of the arbitration agreement nor does it provide
a colorable basis or reason to believe that discovery would be material in establishing that
ReadyOne fraudulently induced Simental to sign the agreement and that, consequently, there was
no meeting of the minds. See In re FirstMerit Bank, 52 S.W.3d at 758 (there was “no evidence
that the sellers actually misrepresented the [arbitration] Addendum’s terms, or that they made any
false material representations with regard to the Arbitration Addendum itself”).
Simental argues that the testimony in her affidavit “provided sufficient information from
which the trial court could conclude it lacked complete information to summarily decide the issue
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of whether there was a valid and enforceable agreement to arbitrate between the parties under
general contract principles.” However, this is not the applicable test to determine whether
pre-arbitration discovery on the validity of an arbitration agreement is warranted. As established
above, when a trial court lacks sufficient information regarding the applicability of a defense to an
arbitration agreement, it has the discretion to order pre-arbitration discovery. See In re Houston
Pipe Line Co., 311 S.W.3d at 451. However, it may do so only if it has a colorable basis or reason
to believe that discovery will aid in that determination. See Barron, 190 S.W.3d at 849-50;
Solgas, 2007 WL 1892206, at *6-7. Adopting Simental’s position that pre-arbitration discovery
is warranted when the trial court lacks sufficient information to summarily conclude that the
arbitration agreement is valid would impermissibly shift the burden of persuasion from the party
seeking to avoid arbitration to the party seeking to enforce arbitration. See In re FirstMerit Bank,
N.A., 52 S.W.3d at 756 (noting that party opposing arbitration bears the burden of proving a
defense against arbitration).
In light of the foregoing, we hold that the trial court abused its discretion by ordering
discovery on Simental’s defensive claims of fraudulent inducement and no meeting of the minds.
2. Inadequate Remedy by Appeal
Simental’s failure to prove that the discovery she sought would be material in helping her
establish her defenses to arbitration did not provide the trial court with the basis required to order
pre-arbitration discovery. Because the trial court had no basis to compel ReadyOne to produce
the information sought by Simental, the trial court’s discovery order was unjustifiably harassing
and unduly burdensome. Such an error cannot be cured by ordinary appeal. See Walker, 827
S.W.2d at 843. Accordingly, we hold that ReadyOne has no adequate remedy by appeal.
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CONCLUSION
We conditionally grant ReadyOne’s petition for writ of mandamus. We hereby direct the
trial court to vacate its discovery order. Mandamus will issue only if the trial court fails to act
within ten days from the date of this opinion.
December 21, 2012
CHRISTOPHER ANTCLIFF, Justice
Before McClure, C.J., Rivera, and Antcliff, JJ.
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