COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
'
IHS ACQUISITION NO. 171, INC.
d/b/a MESA HILLS SPECIALTY '
HOSPITAL, ENCORE HEALTHCARE,
LLC, and LYRIC HEALTH CARE ' No. 08-11-00195-CV
HOLDINGS III, INC.,
' Appeal from
Appellants,
' County Court at Law No. 5
v. ' of El Paso County, Texas
JOANN BEATTY-ORTIZ, § (TC # 2010-4254)
Appellee. §
OPINION
IHS Acquisition No. 171, Inc. d/b/a Mesa Hills Specialty Hospital, Encore Healthcare,
L.L.C., and Lyric Healthcare Holdings III, Inc., (collectively Appellants), file this interlocutory
appeal challenging the trial court’s denial of its motion to compel arbitration. Finding error, we
reverse.
FACTUAL SUMMARY
IHS Acquisitions No. 171, doing business as Mesa Hills Specialty Hospital, hired Joann
Beatty-Ortiz (Beatty) in May 2000. On June 30, 2006, Beatty was promoted to Chief Executive
Officer (CEO) where she remained until her termination on February 3, 2010.
On March 31, 2010, Beatty filed a complaint with the Texas Workforce Commission
Civil Rights Division against “IHS Acquisitions #171 d/b/a Mesa Hills Specialty Hospital”
alleging continuing gender discrimination from November 2008 until the date of her termination.
She claimed constant harassment and belittlement from the Regional Director of Operations,
Paul Miller, and that she was not the only female subjected to Miller’s demeaning behavior and
double standards. Beatty further asserted that prior to her termination, she had not received a
single disciplinary action warning that her job was in jeopardy or a negative performance
evaluation. She was the only female CEO in her region and upon her termination, the position
was filled by a man who was previously the director of environmental services.
On October 28, 2010, Beatty filed suit against Appellants, alleging essentially the same
gender discrimination allegations contained in her Texas Workforce Commission Complaint
against IHS. The only explanation she was given was that “the hospital was not going in the
direction they wanted to.” Beatty sought front and back pay benefits, compensatory damages,
punitive damages, attorney’s fees, costs, and prejudgment and post-judgment interest.
Appellants collectively filed a motion to compel arbitration, attaching a copy of a document
signed by Beatty on September 23, 2008.
THE ARBITRATION AGREEMENT
The document, entitled “Mutual Arbitration Agreement” provides in relevant part:
IHS Acquisition No. 174, Inc. (‘Employer’) as an affiliate of Lyric Health Care
Holdings, III, Inc. maintains an Employee Injury Benefit Plan (the ‘Plan’) to pay
benefits to Participants due to injuries or illnesses incurred in the course and
scope of employment with Company or affiliates of Company who adopt the
Plan. The Plan pays defined: (i) disability wage replacement benefits; (ii) death
benefits to Participant’s beneficiaries; (iii) dismemberment/loss of use benefits;
and (iv) medical benefits.
The Mutual Arbitration Agreement (‘Agreement’) binds Employer and Employee
to arbitrate claims covered by this Agreement. The Effective Date of this
Agreement is for employees currently employed by Employer, three (3) business
days following the notice date of the Plan (through receipt of the Summary Plan
Description) (‘Notice Date’). The Notice Date is August 8, 2008. If an Employee
is hired after the Notice Date, the Employee shall be provided a copy of the
Summary Plan Description and this Agreement and will be bound by this
Agreement and covered by the Plan.
I. ARBITRATION
-2-
(This is our agreement to binding arbitration.)
The Employer and Employee each agree to binding arbitration of all claims and
disputes described hereafter, whether these claims and disputes exist now or arise
in the future. All claims subject to arbitration must be submitted to arbitration
within one year of the date of the incident giving rise to the claim or is forever
barred. The claims, disputes and allegations subject to binding arbitration under
this Agreement include my claims involving Employer, as well as Employer’s
claims against me, for:
1. Employer’s negligence, gross negligence, strict liability, intentional act,
omission or any other claim or cause of action with respect to any
employment-related death, injuries, trauma or illness;
2. tort claims (including, but not limited to, any claims for bodily injury or
physical, mental or psychological injury) for injuries, trauma or illness I
may sustain in the course and scope of my employment;
3. claims for wrongful termination, demotion, or discharge under statutory
of common law, including retaliatory discharge claims related to
workplace injuries, illnesses or trauma;
4. claims for a violation of any federal, state or other government law,
statute, regulation or ordinance relating directly or indirectly to my
workplace injury, illness or trauma; and
5. any and all claims challenging the validity or enforceability of this
Agreement (in whole or in part) or challenging the applicability of this
Agreement to a particular dispute or claim.
The appeal of a full or partial denial of benefits under the Plan is not covered by
this Agreement.
BY ARBITRATING THESE CLAIMS, EMPLOYER AND EMPLOYEE
UNDERSTAND THAT FOR EACH PARTY ANY CAUSE OF ACTION
DESCRIBED IN THIS AGREEMENT WILL BE SUBJECT TO
RESOLUTION IN ARBITRATION ACCORDING TO THE
PROCEDURES PROVIDED IN THIS AGREEMENT.
II. ARBITRATION PROCEDURES
(This is how the arbitration will be conducted)
. . .
III. TERM
-3-
Employer may modify or terminate this Agreement at any time. Any such change
shall be prospective only. No change, amendment, modification or termination
shall affect the obligation of both parties to arbitrate, whether the request for
arbitration was before or after any modification, amendment, or termination of
this Agreement. The Agreement in place at the time of the occurrence of the
arbitration event shall govern.
THE MISNOMER
The agreement binds the “Employer,” listed as IHS Acquisition No. 174 as an affiliate of
Lyric Health Care Holdings, III, Inc. But Beatty was employed by IHS Acquisition No. 171,
filed her complaint against IHS Acquisition No. 171, and ultimately sued IHS Acquisition No.
171. While Appellants maintain the contract contains a simple scrivener’s error, Beatty counters
that because IHS does not claim to be the same entity as IHS Acquisition No. 174 and does not
claim to be an alter ego of IHS Acquisition No. 174, IHS is not a party to the arbitration policy
and cannot enforce it.
STANDARD OF REVIEW
The parties do not dispute that the FAA applies to this proceeding. See 9 U.S.C.A. §§ 1-
16 (West 2009). Section 51.016 of the Texas Civil Practice and Remedies Code permits the
interlocutory appeal of an order denying a motion to compel arbitration under the Federal
Arbitration Act. TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (West Supp. 2011). A trial
court’s determination regarding the validity of an agreement to arbitrate is a question of law
which we review de novo. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). A
trial court abuses its discretion when it refuses to compel arbitration pursuant to a valid and
enforceable arbitration agreement. In re Halliburton Co., 80 S.W.3d 566, 573 (Tex. 2002)(orig.
proceeding).
A party seeking to compel arbitration must first satisfy a two-pronged burden of proof:
first, it must demonstrate the existence of a valid agreement to arbitrate the dispute, and second,
-4-
it must prove that the claims asserted are within the scope of the agreement. In re Dillard Dept.
Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); In re AdvancePCS Health L.P., 172 S.W.3d 603,
605 (Tex. 2005)(orig. proceeding); Budd v. Max International LLC, 339 S.W.3d 915, 918
(Tex.App.--Dallas 2011, no pet.). If the party seeking arbitration carries its initial burden, then
the burden shifts to the party opposite to present evidence of an affirmative defense. Id.
While a strong presumption favoring arbitration exists, the presumption arises only after
the party seeking to compel arbitration proves that a valid arbitration agreement exists. J.M.
Davidson, Inc., 128 S.W.3d at 227. In deciding whether a party has met its initial burden, we do
not resolve doubts or indulge a presumption in favor of arbitration. Id. Rather, the party
attempting to compel arbitration must show that the arbitration agreement meets all requisite
contract requirements. Id. at 228. If the trial court determines that a valid agreement exists, the
burden shifts to the party opposing arbitration to raise an affirmative defense to enforcement of
the arbitration agreement. Id. at 227-28.
APPLICABLE LAW
The Federal Arbitration Act (FAA)
The FAA provides, in relevant part:
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.
See 9 U.S.C. § 2 (West 2009); Rent-A-Center West, Inc. v. Jackson, --- U.S.---, 130 S. Ct. 2772,
2776, 177 L. Ed. 2d 403 (2010), quoting Moses H. Cone Memorial Hospital v. Mercury Constr.
Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983). The above provision has been
described as reflecting both a “liberal federal policy favoring arbitration,” and the “fundamental
principle that arbitration is a matter of contract.” See AT&T Mobility LLC v. Conception, ---
-5-
U.S. ---, 131 S. Ct. 1740, 1745, 179 L. Ed. 2d 742 (2011) citing Moses H. Cone Memorial
Hospital, 460 U.S. at 24, 103 S.Ct. at 927 and Rent-A-Center, --- U.S. at ---, 130 S. Ct. at 2776.
“The FAA thereby places arbitration agreements on an equal footing with other contracts, and
requires courts to enforce them according to their terms.” Rent-A-Center, --- U.S. ---, 130 S. Ct.
2776 (internal citations omitted); citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
443, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006) and Volt Information Sciences, Inc. v. Board of
Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488
(1989).
An agreement to arbitrate is a contract, the relation of the parties is contractual, and the
rights and liabilities of the parties are controlled by the law of contracts. As such, a party cannot
be required to submit to arbitration any dispute which she has not agreed to submit. See AT&T
Mobility LLC, 131 S. Ct. at 1740 (arbitration is a creature of contract; a person can be compelled
to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed so to do).
Because arbitration is based on a contractual relationship, a party who has not consented cannot
not be forced to arbitrate a dispute. Since arbitration is generally a matter of contract, the FAA
requires courts to honor parties’ expectations. 9 U.S.C.A. § 1 et seq.; AT&T Mobility LLC, 131
S. Ct. at 1740.
Texas Law - Formation of Contracts
When determining the validity of arbitration agreements that are subject to the FAA, we
apply ordinary state law contract principles that govern the formation of contracts. In re Palm
Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006), citing First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995); In re Kellogg Brown &
Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005). The party attempting to compel arbitration must
-6-
show that the arbitration agreement meets all requisite contract elements. J.M. Davidson, Inc.,
128 S.W.3d at 228. The following elements are required for the formation of a valid and binding
contract: (1) an offer; (2) acceptance in strict compliance with the terms of the offer; (3) a
meeting of the minds; (4) each party’s consent to the term; and (5) execution and delivery of the
contract with the intent that it be mutual and binding. Cessna Aircraft Co. v. Aircraft Network,
L.L.C., 213 S.W.3d 455, 465 (Tex.App.--Dallas 2006, pet. denied). Like other contracts, an
agreement to arbitrate must be supported by consideration. In re Palm Harbor Homes, Inc., 195
S.W.3d at 676; In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex. 2005)(per curiam).
Mutual Promises and Consideration
Mutual, reciprocal promises which bind both parties may constitute consideration for a
contract. Texas Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309 (Tex.App.--El Paso 2009,
no pet.). In the case of a stand-alone arbitration agreement, both sides are required to enter into
binding promises to arbitrate. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc.,
324 S.W.3d 564, 566 (Tex. 2010)(mutual promises to submit a dispute to arbitration are
sufficient consideration to support an arbitration agreement); see also In re Halliburton Co., 80
S.W.3d at 569-70 and J.M. Davidson, Inc., 128 S.W.3d at 228 (cases noting that when mutual
promises to submit employment disputes to arbitration bind both parties to their promises to
arbitrate, sufficient consideration exists to support an arbitration agreement between the
employer and the at-will employee).
-7-
Illusory Promises
A promise which does not bind the promisor, as when the promisor retains the option to
discontinue performance, is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010), citing
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849 (Tex. 2009); see
also J.M. Davidson, Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co., 883 S.W.2d 642, 645
(Tex. 1994)(employer’s promises were illusory because they were dependent upon at-will
employee’s period of continued employment; thus, employer could avoid performance by
terminating at-will employee’s employment while the employee was bound to her promise
whether or not she remained employed). Consequently, when a purported bilateral contract is
supported only by illusory promises, there is no contract. In re 24R, Inc., 324 S.W.3d at 567,
citing Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009), quoting Light,
883 S.W.2d at 644-45.
However, where an employer cannot avoid its promise to arbitrate by amending a
termination provision or terminating it altogether, the dispute resolution plan is not illusory. See
J.M. Davidson, Inc., 128 S.W.3d at 228; In re Polymerica, LLC, 296 S.W.3d 74, 76 (Tex. 2009);
see also In re Halliburton Co., 80 S.W.3d at 569-70 (when mutual promises to submit
employment disputes to arbitration bind both parties to their promises to arbitrate, sufficient
consideration exists to support an arbitration agreement between the employer and the at-will
employee).
ANALYSIS
Appellants bring two issues for review. In Issue One, they complain that the trial court
erred in denying the motion to compel because pursuant to the contractual language, the
arbitrator, not the trial court, should decide gateway issues of validity, enforceability, and
-8-
arbitrability. Alternatively, in Issue Two, Appellants suggest that even if the trial court had the
authority to decide arbitrability, it abused its discretion in denying the motion to compel. The
crux of the dispute is the misnomer. Appellants argue that this clerical error is itself a gateway
issue and therefore must be arbitrated under the express terms of the Agreement. In contrast,
Beatty focuses on two arguments: (1) a court should decide whether the Agreement is
enforceable, not an arbitrator; and (2) no agreement exists between the parties because IHS is not
the “Employer” referenced in the Agreement.
Court Or Arbitrator?
When a dispute involving an agreement to arbitrate is brought to a court for resolution, it
is the court’s obligation to determine whether the parties agreed to submit a particular issue to
arbitration. See United Steelworkers of America v. American Mfg. Co., 363 U.S. 564, 80 S. Ct.
1343, 4 L. Ed. 2d 1403 (1960); Del E. Webb Const. v. Richardson Hosp. Authority, 823 F.2d 145
(5th Cir. 1987). An arbitration provision may give the arbitrator the power to resolve gateway
issues regarding validity and enforceability of the arbitration agreement. In that event, the entire
matter of arbitrability is transferred from the courts to the arbitrator. Unless the agreement
clearly demonstrates that the parties intended to confer on the arbitrator the power to determine
what disputes are arbitrable, the court retains the duty to decide that issue. Arbitration
agreements that clearly and unmistakably show intent to assign gateway issues to the arbitrator
are fully enforceable. See Rent-A-Center, -- U.S.--, 130 S. Ct. at 2777; First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1985)(holding question of
primary power to decide arbitrability “turns upon what the parties agreed about that matter”);
AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S. Ct. 1415, 1418,
89 L. Ed. 2d 648 (1986)(holding parties may agree to arbitrate arbitrability). Accordingly, under
-9-
First Options, gateway questions which are normally decided by a court will be submitted to an
arbitrator where the agreement was clear and unmistakable. See First Options, 514 U.S. at 943;
AT&T Technologies, Inc., 475 U.S. at 649, 106 S.Ct. at 1418.
Here, the Agreement provided that “any and all claims challenging the validity or
enforceability of this Agreement . . .” are subject to arbitration. It thus clearly and unmistakably
provided for issues of validity and enforceability to go to the arbitrator. Beatty argues that
whether the contract is supported by adequate consideration is not an issue of validity or
enforceability but rather an issue of formation for the court to decide. We disagree. The
Agreement bears Beatty’s signature evidencing her assent to its terms and clearly provides for an
arbitrator to decide all issues of arbitrability.
In Rent-A-Center, the Supreme Court clarified how courts must treat challenges to an
arbitration agreement’s delegation provision. See Rent-A-Center --- U.S. ----, 130 S. Ct. 2772.
The Arbitrator, and not any federal, state, or local court or agency, shall have
exclusive authority to resolve any dispute relating to interpretation, applicability,
enforceability or formation of this Agreement including, but not limited to any
claim that all or any part of this Agreement is void or voidable.
Id. at 2775-76. According to the Supreme Court, the analysis in situations challenging a stand-
alone arbitration agreement containing a delegation provision depends on the kind of challenge
being made. Id. If the challenge relates to the arbitration agreement as a whole, and the
agreement contains a provision delegating issues of arbitrability to the arbitrator, then the
challenge must be directed to arbitration. Id. If the challenge is specific to the issue of
delegation, however, then the court must resolve the challenge. Id.
The Agreement presented clearly and unmistakably provides that issues of validity and
enforceability go to the arbitrator. Beatty signed the Agreement, manifesting her intent that
gateway issues be arbitrated. Additionally, Beatty challenges the entire arbitration agreement
- 10 -
based on the assertion that the term provision renders the Agreement illusory. Under Rent-A-
Center, because there is a specific delegation provision, and Beatty challenges the Agreement as
a whole, rather than the specific delegation provision, the issue goes to the arbitrator. Therefore,
the determination of whether the agreement is illusory is for the arbitrator and not the court.
Effect of the Misnomer
We have already highlighted the misnomer in the Agreement. Beatty was employed by
IHS Acquisition No. 171 d/b/a Mesa Hills Specialty Hospital but the Agreement defines
“Employer” to mean “IHS Acquisition No. 174. Beatty argues that the Appellants failed to
demonstrate the existence of an arbitration agreement between the parties. A misnomer does not
render an arbitration agreement unenforceable. See Fogal v. Stature Construction, Inc., 294
S.W.3d 708, 716 (Tex.App.--Houston [1st Dist.] 2009, pet. denied). In Fogal, the arbitration
clause was signed by the Fogals and Tremont Homes, and the entity named Stature Construction
appeared at first to be a non-signatory to the arbitration agreement. Fogal, 294 S.W.3d at 717.
However, evidence was produced showing that Stature Construction was doing business as
“Tremont Custom Homes” (which was the entity that should have been listed on the earnest-
money contract that referred to Tremont Homes). Id. Moreover, evidence showed that the deed
for the house purchased by the Fogals reflected that Stature was the seller referred to in the
earnest-money contract. Id. The Fogals did not dispute that Stature was the seller or that Stature
was doing business as Tremont Custom Homes. Instead, the Fogals built their non-arbitration
argument on the technical error mentioning “Tremont Homes” rather than “Tremont Custom
Homes,” and claimed that since there was not an assumed name certificate filed with the Texas
Secretary of State, Stature could not enforce the arbitration agreement. Id. The Houston Court
noted that:
- 11 -
Because arbitration is contractual in nature, the FAA generally ‘does not require
parties to arbitrate when they have not agreed to do so.’ Federal and Texas state
courts have recognized, however, that “ ‘[i]t does not follow . . . that under the
[FAA] an obligation to arbitrate attaches only to one who has personally signed
the written arbitration provision’; instead, under certain circumstances, principles
of contract law and agency may bind a non-signatory to an arbitration
agreement.”
Id., citing Kellogg Brown & Root, 166 S.W.3d at 738. Although that case dealt with whether or
not an assumed named certificate was required, the Houston Court of Appeals ultimately held
that Stature could enforce the arbitration agreement, despite the technical deficiencies. Id. at
717-18.
In construing an arbitration agreement, the court should attempt to give effect to the
parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the
circumstances under which the agreement was made. See In re Kaplan Higher Educ. Corp., 235
S.W.3d 206, 210 (Tex. 2007)(“Arbitration agreements are enforced according to their terms and
according to the intentions of the parties.”)(internal quotations and citations omitted). Here, the
Agreement clearly evidences an intent for the “Employer” and “Employee” to mutually arbitrate
a specific and detailed list of disputes. The parties’ intent is ascertained by looking to the plain
language of the agreement. Appellants not only presented the signed Agreement, it is
undisputed that Beatty was employed by IHS 171 at the time the Agreement was signed. Beatty
did not present evidence that she did not intend to enter into an Agreement with her Employer or
that she was not employed by IHS 171 at the time she signed the Agreement. Nor does Beatty
present any evidence that she ever worked for IHS 174.
To meet their burden, Appellants must demonstrate the existence of a valid agreement to
arbitrate the claimed disputes. Although not always expressly stated, part of this requirement is
that the Agreement be between the parties. Even though the Agreement provides that issues of
- 12 -
validity and enforceability must go to an arbitrator, Appellants still bear the burden of producing
some evidence that they were either a party to the Agreement or otherwise had rights to enforce
it. They presented an Agreement which is clearly between an Employer and Employee.
Although the Agreement defines the Employer as IHS Acquisition 174, Appellants also
produced evidence that at the time the Agreement was signed, Beatty was employed by IHS
Acquisitions 171 and that Beatty had never been employed by IHS 174.
Affirmative Defense
If the party seeking arbitration carries its initial burden, then the burden shifts to the party
opposing arbitration to present evidence on an affirmative defense to the arbitration agreement.
J.M. Davidson, Inc., 128 S.W.3d at 227. In the context of enforcement of an arbitration
agreement, defenses refer to unconscionability, duress, fraudulent inducement, and revocation.
In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). Because the law favors
arbitration, the burden of proving a defense to arbitration is on the party opposing it. See J.M.
Davidson, Inc., 128 S.W.3d at 227.
Beatty has not offered evidence as to any of the applicable affirmative defenses. Her
only claims related to issues of arbitrability which we have already determined must be presented
to the arbitrator. We conclude that the trial court erred in refusing to compel arbitration. We
sustain both issues for review and reverse and remand for orders compelling arbitration.
May 9, 2012 ________________________________________________
ANN CRAWFORD McCLURE, Chief Justice
Before McClure, C.J., Rivera, and Antcliff, JJ.
- 13 -