West Texas Express, D/B/A Roberts' Transportation, Inc. v. Pedro Guerrero

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
WEST TEXAS EXPRESS d/b/a §
ROBERTS’ TRANSPORTATION, INC.,
§ No. 08-12-00307-CV
Appellant,
§ Appeal from the
v.
§ County Court at Law No. 6
PEDRO GUERRERO,
§ of El Paso County, Texas
Appellee.
§ (TC#2011DCV01329)
OPINION
In this non-subscriber negligence case, West Texas Express d/b/a Roberts’ Transportation,
Inc. (hereinafter, “WTE”) appeals the trial court’s order denying its motion to compel arbitration
and to stay the proceedings pending arbitration. In two issues, WTE argues the trial court erred in
concluding: (1) the Federal Arbitration Act (hereinafter, “FAA”) did not apply to the arbitration
agreement in issue; and (2) the agreement was invalid and unenforceable. We reverse and
remand to the trial court for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
Pedro Guerrero was employed as a truck driver by WTE. While working for WTE,
Guerrero was injured when his 18-wheeler was struck by another 18-wheeler. WTE is a
non-subscriber under the Texas Workers’ Compensation Act (hereinafter, “TWCA”) and did not
carry workers’ compensation insurance. Instead, it voluntarily established a self-funded
Occupational Injury Benefit Plan (hereinafter, “Plan”) to “provide[] benefits for Participants who
sustain certain accidental on-the-job injuries.” The Plan contains the following provision:
3.4 Mutual Arbitration of Disputes. Under the Plan, a Participant agrees that
all types of disputes or differences arising out of or relating to a Participant’s injury,
between the Participant and the Company during or following the Participant’s
employment with the Company, that cannot first be resolved through an internal
review process and, if necessary, through mediation, are subject to final and
binding arbitration. A Participant waives, releases, and gives up any rights that the
Participant has to sue in court and to have a jury determine a dispute for claims
including, but not limited to (i) application and interpretation of the Arbitration
Agreement (attached hereto as Exhibit ‘A’ and made a part hereof for all purposes),
and breach thereof; and (ii) any potential action as to the Company’s negligent
cause of a Participant’s work-related injury. All claims and disputes that a
Participant . . . has or may have in the future against the Company and/or its
subsidiaries, successors, officers, directors, shareholders, employees or agents, and
all of these persons’ and entities’ claims and disputes against the Participant are
subject to binding arbitration under the terms specified in Exhibit ‘A.’
Exhibit “A” to the Plan is a document entitled “ARBITRATION AGREEMENT.” By signing
the agreement, the employee acknowledges receipt of and an opportunity to read and review the
Summary Plan Description (hereinafter, “SPD”) of the Plan and to ask questions regarding the
Plan. The agreement states in pertinent part:
I also understand that the Plan includes provisions for mutual arbitration of disputes
between [WTE] and its employees.
. . .
In execution of this Arbitration Agreement . . . under the [Plan], I agree that
all claims or controversies arising out of or relating to an injury sustained by me
during the course and scope of employment with [WTE] that cannot first be
resolved through an internal review process and, if necessary, through mediation
are subject to final and binding arbitration.
. . .
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I acknowledge and understand that by executing this Agreement, I am giving
up my right to a jury trial on all of the claims covered by this Agreement and
that the decision of the arbitrators selected hereunder shall be final and
binding on both parties.
The Arbitration Procedures set forth in the [SPD] (and also in Section
Seven of the Plan) are incorporated by reference into, and made part of, this
Agreement the same as if they were set forth in this Agreement at length and in full.
This Agreement, combined with the incorporated Arbitration Procedures set forth
in the [SPD] description, is the complete agreement between [WTE] and me on the
subject of arbitration of these types of disputes. . . . Both [WTE] and I agree that
this Agreement binds and benefits our successors, subsidiaries, affiliates, assigns,
beneficiaries, heirs, children, spouses, parents and legal representatives.
This Agreement to arbitrate shall survive the termination of my
employment with [WTE]. It may only be revoked or modified by mutual consent
evidenced by a writing signed by both [WTE]’s authorized representative and me,
and which specifically states an intent to revoke or modify this Agreement.
[Emphasis in orig.].
Although Guerrero signed the arbitration agreement and received benefits under the Plan,
he sued WTE for negligence. Contending that Guerrero had agreed to—and enrolled in—the
Plan, WTE moved to compel Guerrero to submit his claim to arbitration and to stay the
proceedings pending the outcome of arbitration.
Guerrero countered that, for several reasons, his suit should not proceed to arbitration.
Most notably, he argued the agreement was unenforceable because it was part of an employment
contract of a transportation worker exempt from arbitration under Section 1 of the FAA.
Guerrero also argued the arbitration agreement was void pursuant to Section 406.033(e) of the
Texas Labor Code. Further, Guerrero claimed the arbitration agreement was invalid because:
(1) it was not supported by consideration; (2) it was illusory; (3) it was substantively and/or
procedurally unconscionable; and (4) he was fraudulently induced to sign it. Lastly, Guerrero
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contended the arbitration agreement was void because Congress never intended the FAA to
preempt the TWCA and because, as applied, the FAA violates the Tenth Amendment to the U.S.
Constitution.
The trial court held a hearing on the motion and, after taking the matter under advisement,
denied the motion without specifying the basis for its ruling.
STANDARD OF REVIEW
We review the trial court’s denial of a motion to compel arbitration for an abuse of
discretion. See In re Labatt Food Svc., L.P., 279 S.W.3d 640, 643 (Tex. 2009)(orig. proceeding).
Under this standard, we defer to the trial court’s factual determinations that are supported by the
record and review legal questions de novo. Id.
A party seeking to compel arbitration must establish the existence of a valid arbitration
agreement, and show that the claims asserted fall within the scope of the arbitration agreement. In
re Dillard Dept. Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006)(orig. proceeding). If that party
succeeds in so establishing and showing, the burden shifts to the party opposing arbitration to
prove any alleged defenses to arbitration. In re AdvancePCS Health, L.P., 172 S.W.3d 603, 607
(Tex. 2005)(orig. proceeding). If the opposing party fails to so prove, the trial court has no
discretion but to compel arbitration. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex.
2001)(orig. proceeding). Because a presumption exists in favor of arbitration, courts must
resolve any doubt about an arbitration agreement’s existence or scope in favor of arbitration. Id.
at 753.
APPLICABILITY OF THE FAA
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In its first issue, WTE argues the trial court abused its discretion in denying the motion to
compel arbitration because the arbitration agreement is subject to the FAA and not exempt from
arbitration under Section 1 of the FAA as an employment contract of a transportation worker. We
agree.
Applicable Law
The FAA provides, in relevant part, that:
A written provision in . . . a contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising out of such contract . . . shall
be 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.A. § 2 (West 2009). The FAA, however, exempts “contracts of employment of seamen,
railroad employees, or any other class of workers engaged in foreign or interstate commerce” from
its coverage. 9 U.S.C.A. § 1. Employment contracts of transportation workers “actually
engaged in the movement of goods in interstate commerce” fall within the exemption provided by
Section 1 of the FAA. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 112, 121 S. Ct. 1302,
1307, 149 L. Ed. 2d 234 (2001). Thus, truck drivers, such as Guerrero, are considered
transportation workers within the meaning of Section 1 of the FAA. In re Swift Transp. Co., Inc.,
311 S.W.3d 484, 488-89 (Tex.App.--El Paso 2009, orig. proceeding).
For purposes of Section 1 of the FAA, a “contract of employment” is a “contract between
an employer and an employee in which the terms and conditions of employment are stated.” In re
Swift, 311 S.W.3d at 489. An occupational injury benefit plan is a “contract of employment”
within the meaning of Section 1 of the FAA if it is “a mandatory company policy and it includes an
arbitration provision.” Id. at 490.
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Discussion
WTE’s Plan is not a contract of employment within the meaning of Section 1 of the FAA.
Guerrero contends the Plan is a contract of employment because Section 643.106 of the Texas
Transportation Code requires WTE “to maintain [the Plan] in lieu of its decision to be a
non-subscriber under Texas law.” In other words, Guerrero claims the Plan is a mandatory
company policy because the “benefits were required under [Section 643.106].” However,
Section 643.106 does not impose such a requirement.
Section 643.106 requires an employer, such as WTE, to “protect its employees by
obtaining: (1) workers’ compensation insurance coverage as defined under Subtitle A, Title 5,
Labor Code; or (2) accidental insurance coverage [from an approved insurance carrier].”
TEX.TRANSP.CODE ANN. § 643.106(a)(West 2011). “By its own terms, [Section 643.106] allows
an employer to chose not to carry insurance coverage under the TWCA[,] . . . [and] compliance
with the TWCA requires merely choosing between workers’ compensation coverage and
accidental insurance coverage.” Rojas v. DAJ Enters., Inc., No. EP-00-CA-313-DB, 2001 WL
682223, *3 (W.D. Tex. Mar. 6, 2001)(mem. op.)(rejecting alternative argument that, even if
accidental insurance was purchased solely for the purpose of complying with the TWCA—not
Section 643.106—the insurance plan did not fall under a safe-harbor provision exempting it from
ERISA pre-emption because employer had opted out of the workers’ compensation scheme by
adopting its own self-funded plan). Thus, under the statute’s plain language, an employer is
required to provide insurance coverage but is not required to subscribe to workers’ compensation
insurance to meet that obligation.
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Given that Section 643.106 does not require an employer to provide worker’s
compensation insurance coverage in the first place, we cannot conclude the statute requires WTE
to maintain a self-funded occupational benefit plan as a substitute for worker’s compensation
insurance coverage. 1 Futher, neither party contends “the Plan is the same as the insurance
described in the statute,” and we do not hold that it is, we cannot conclude the benefits provided by
the Plan are equivalent to the insurance required by Section 643.106.2 Accordingly, the trial court
abused its discretion in denying WTE’s motion to stay pending arbitration on the basis that,
pursuant to Section 643.106, the Plan is a contract of employment within the meaning of Section 1
of the FAA.
WTE’s first issue is sustained.
VALIDITY AND ENFORCEABILITY OF THE ARBITRATION AGREEMENT
In its second and final issue, WTE contends the arbitration agreement is an enforceable
contract the scope of which encompasses Guerrero’s negligence claim. Therefore, WTE insists
that the trial court abused its discretion by declining to order the parties to arbitration. We agree.
General Principles of Contract Law
Chief among the various reasons asserted by Guerrero why the arbitration agreement is
unenforceable as a matter of law is his assertion that the agreement is invalid under general
1
There is no indication in the record that, at the time of Guerrero’s injury, WTE had in force accidental insurance
coverage for its employees in lieu of workers’ compensation insurance.
2
Indeed, as framed by Guerrero, “the issue for the trial court (and this Court) is not whether ‘the Plan is the same as
the insurance described in the statute,’ but whether the benefits provided in the Plan are required under the Texas
Transportation Code.” [Emphasis in orig.].
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principles of contract law.3 When determining the validity of an arbitration agreement that is
subject to the FAA, we apply state law principles that govern the formation of contracts. In re
Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 227-28 (Tex. 2003).
A. Illusory
Guerrero argued that the arbitration agreement is illusory because WTE was given the
unilateral right—under the Plan—to terminate the Plan, “including the arbitration provision
contained therein[.]” Specifically, Guerrero directs us to the following language in the Plan:
9.2 Term of Plan. This Plan may be terminated by the Company at any time,
provided that the Company has sent each Participant written notice of its intention
to terminate at least thirty days prior to such termination date. In the event of (i)
any changes in applicable law or regulations, or (ii) judicial decisions, that the
Company determines in its sole discretion adversely affects the purpose of this
Plan, the Company may in its sole discretion without notice to any Participant
terminate this Plan.
However, “an arbitration clause is not illusory unless one party can avoid its promise to arbitrate
by amending the provision or terminating it altogether.” In re Odyssey Healthcare, Inc., 310
S.W.3d 419, 424 (Tex. 2010). Here, Guerrero does not point to any language in the arbitration
agreement demonstrating that WTE can avoid its promise to arbitrate by unilaterally amending the
agreement or terminating it altogether. Indeed, there is no such language. The arbitration
agreement makes clear that “[i]t may only be revoked or modified by mutual consent evidenced by
a writing signed by both [WTE]’s authorized representative and [Guerrero], and which specifically
3
Guerrero also argues that, since the FAA does not apply to the arbitration agreement, the agreement is void under
Section 171.002 of the Texas Arbitration Act because it is not signed by each party and each party’s attorney. Our
conclusion that the FAA applies to the arbitration agreement renders this argument moot.
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states an intent to revoke or modify this Agreement.” Accordingly, Guerrero has failed to prove
that the arbitration agreement is illusory.
B. Consideration
Guerrero contends that the Plan is not supported by valid consideration. Like other
contracts, arbitration agreements must be supported by valid consideration. In re Palm Harbor
Homes, 195 S.W.3d at 676. Consideration may take the form of mutual promises to submit a
dispute to arbitration. In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010). Here, both Guerrero
and WTE promised to submit their claims and disputes to binding arbitration, as evidenced by the
following provision in the Plan: “All claims and disputes that a Participant . . . has or may have in
the future against the Company and/or its subsidiaries, successors, officers, directors,
shareholders, employees or agents, and all of these persons’ and entities’ claims and disputes
against the Participant are subject to binding arbitration under the terms specified in [the
Arbitration Agreement].”
At trial, Guerrero asserted that the Plan was not supported by valid consideration “because
the Plan did not impose any new obligations on [WTE] that it was not already required to provide
. . . [him], under [Section 643.106 of the Texas Transportation Code].” However, as was
discussed above, Section 643.106 does not require WTE to provide its employees with benefits
under the Plan.
On appeal, Guerrero advances a different argument in support of his assertion that the
arbitration agreement fails for lack of consideration. He contends that the arbitration agreement is
not a stand-alone document because it is incorporated into the Plan and SPD by reference and,
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even if the arbitration agreement were a stand-alone document, it lacks mutual promises to
arbitrate. However, as WTE correctly points out in its reply brief, “Guerrero does not argue that
there is a failure of consideration based on the incorporated provisions of the Plan and the SPD.”
Further, the arbitration agreement itself contains mutual agreements to arbitrate. The arbitration
agreement makes clear that “the decision of the arbitrators selected hereunder shall be final and
binding on both parties” and that both of their “successors, subsidiaries, affiliates, assigns,
beneficiaries, heirs, children, spouses, parents and legal representatives” are bound by the
agreement.
Guerrero has failed to show that the arbitration agreement was not supported by valid
consideration.
C. Fraudulent Inducement
Guerrero also alleged that “the agreement was obtained by fraudulent inducement.” The
elements of fraud are: (1) that a material representation was made; (2) the representation was
false; (3) when the representation was made, the speaker knew it was false or made it recklessly
without any knowledge of the truth and as a positive assertion; (4) the speaker made the
representation with the intent that the other party should act upon it; (5) the party acted in reliance
on the representation; and (6) the party thereby suffered injury. Formosa Plastics Corp. USA v.
Presidio Engrs. & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). Here, Guerrero alleged that
WTE fraudulently represented that the Plan was optional to him “when in fact [WTE], in choosing
to be a non-subscriber, was required to provide the Plan benefits under [Section 643.106 of the
Texas Transportation Code].” [Emphasis in orig.]. However, as we have repeatedly stated,
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Section 643.106 does not require WTE to provide its employees with benefits under the Plan.
Accordingly, Guerrero has not shown that the arbitration agreement was based on fraud.
D. Unconscionability
Guerrero argued at trial that the arbitration agreement is procedurally and/or substantively
unconscionable “because [it] plainly attempts to alter [his] substantive rights … under Texas law.”
[Emphasis in orig.]. Guerrero, however, did not meet his burden of establishing either procedural
or substantive unconscionability of the arbitration agreement.
Unconscionability may be either procedural or substantive in nature. In re Halliburton
Co., 80 S.W.3d 566, 571 (Tex. 2002)(orig. proceeding), cert. denied, 537 U.S. 1112, 123 S. Ct.
901, 154 L. Ed. 2d 785 (2003). Procedural unconscionability refers to the circumstances
surrounding the adoption of the arbitration provision and relates to the making or inducement of
the contract, focusing on the facts surrounding the bargaining process. Id.; TMI, Inc. v. Brooks,
225 S.W.3d 783, 792 (Tex.App.--Houston [14th Dist.] 2007, pet. denied). Substantive
unconscionability concerns the fairness of the arbitration provision itself. In re Halliburton Co.,
80 S.W.3d at 571. A contract is substantively unconscionable if, “given the parties’ general
commercial background and the commercial needs of the particular trade or case, the clause
involved is so one-sided that it is unconscionable under the circumstances existing when the
parties made the contract.” In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008)(orig.
proceeding), quoting In re FirstMerit Bank, 52 S.W.3d at 757; see also In re Halliburton Co., 80
S.W.3d at 571. Whether a contract is unconscionable at the time it is formed is a question of law.
In re Poly-Am., L.P., 262 S.W.3d at 348.
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Guerrero does not point to anything in the record questioning the circumstances
surrounding the adoption of the arbitration agreement and has thus failed to prove the agreement is
procedurally unconscionable. See In re Halliburton Co., 80 S.W.3d at 571. According to
Guerrero, the provision in the Plan permitting WTE to unilaterally terminate the Plan is
impermissibly eliminates the benefits under the Plan to which he is entitled pursuant to Section
643.106 of the Texas Transportation Code and violates public policy as expressed by Section
406.033(e) of the Texas Labor Code. As discussed above, Section 643.106 does not require WTE
to provide its employees with benefits under the Plan. Further, as explained below in greater
detail, Section 406.033(e) of the Texas Labor Code is inapplicable. Thus, Guerrero has failed to
prove the arbitration agreement is substantively unconscionable.
Tenth Amendment
Another argument raised by Guerrero at trial in support of his contention that the
arbitration agreement was not subject to arbitration is his assertion that the FAA violates the Tenth
Amendment to the U.S. Constitution.4 Relying on Hodel v. Va. Surface Mining & Reclamation
Ass’n, Inc., 452 U.S. 264, 101 S. Ct. 2352, 69 L. Ed. 2d 1 (1981), Guerrero argued that compliance
with the FAA impermissibly encroaches on a State’s power to enact and regulate its own workers’
compensation system. This specific argument was rejected by the Texas Supreme Court in In re
Odyssey Healthcare, Inc., 310 S.W.3d 419, 424 (Tex. 2010). There, the supreme court
“conclude[d] that compliance with the [FAA] would not ‘directly impair [Texas’s] ability to
structure integral operations in areas of traditional government functions[.]’” Id. at 424, quoting
4
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to
the States respectively, or to the people.” U.S. CONST. amend. X.
12
Hodel, 452 U.S. at 288, 101 S. Ct. 2366. Thus, Guerrero has failed to prove that the Tenth
Amendment is a defense to arbitration.
Non-waiver Provision
Guerrero also contends that the arbitration agreement is void pursuant to Section
406.033(e) of the Texas Labor Code because the agreement amounts to a pre-injury waiver of his
right to sue. Guerrero is mistaken. Section 406.033, which applies to non-subscribers such as
WTE, limits an employer’s ability to obtain contractual waivers of claims. See TEX.LAB.CODE
ANN. § 406.033(e)-(f)(West Supp. 2013)(rendering invalid pre-injury waiver of cause of action or
right by employee of nonsubscriber). In particular, Section 406.033(e) states:
A cause of action described in Subsection (a) may not be waived by an employee
before the employee’s injury or death. Any agreement by an employee to waive a
cause of action or any right described in Subsection (a) before the employee's injury
or death is void and unenforceable.
TEX.LAB.CODE ANN. § 406.033(e). However, “an agreement to arbitrate is a waiver of neither a
cause of action nor the rights provided under section 406.033(a), but rather an agreement that those
claims should be tried in a specific forum.” In re Golden Peanut Co., LLC, 298 S.W.3d 629, 631
(Tex. 2009)(per curiam). In signing the arbitration agreement in this case, Guerrero did not
actually waive his right to sue, he merely agreed to a particular forum for resolution of his cause of
action. Accordingly, Section 406.033(e) is inapplicable. Guerrero has therefore failed to
establish that Section 406.033(e) is a defense to arbitration.
Because a valid arbitration agreement exists that covers the claim alleged by Guerrero, and
no defenses to enforcement have been established, we conclude the trial court had no discretion
but to stay the proceeding pending arbitration.
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WTE’s second and final issue is sustained.
CONCLUSION
Having sustained WTE’s two issues, we reverse the trial court’s order denying WTE’s
motion to compel arbitration and remand this cause with instructions to the trial court to enter an
order compelling arbitration between the parties and staying all other proceedings pending the
outcome of arbitration.
June 25, 2014
YVONNE T. RODRIGUEZ, Justice
Before McClure, C.J., Rivera, and Rodriguez, JJ.
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