

COURT OF APPEALS
EIGHTH DISTRICT OF
TEXAS
EL PASO, TEXAS
 
 



 
DANIEL MENDIVIL,
 
                            Appellant,
 
v.
 
 
ZANIOS FOODS, INC.,
 
                           
  Appellee.


 
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                  No. 08-10-00359-CV
 
Appeal from the
 
County
  Court at Law Number 5
 
of El
  Paso County, Texas
 
(TC# 2009-4554)
 



 
                                                                  O
P I N I O N
Daniel Mendivil appeals the trial court’s
order compelling arbitration, complaining that the arbitration provision was
invalid, illusory, and unconscionable.  For
the reasons that follow, we reverse and remand.
                                                         FACTUAL SUMMARY




Mendivil was employed as a delivery-truck
driver for Zanios Foods, Inc. in El Paso, Texas, and made deliveries both within
El Paso and outside of Texas.  Upon commencement
of his employment, Mendivil was the sole signatory of an Arbitration Policy
Statement (APS) prepared by Zanios, which states:
In consideration of Zanios Foods, Inc.’s offer to employ or
to continue to employ me and my agreement to accept employment or continued
employment under the terms set forth in this Arbitration Policy Statement, I
acknowledge that my employment at Zanios is “at will”, meaning I can be
terminated or quit my employment at any time for any or no reason and I further
agree that any controversy, claim, or dispute against Zanios Foods, Inc.
(“Zanios”) arising out of or relating to my employment with Zanios or the
termination of my employment with Zanios . . . shall be resolved exclusively by
final and binding arbitration . . . .
 
Arbitration shall be the sole and exclusive remedy for any
such controversy, claim, or dispute against Zanios.  I acknowledge that I am knowingly and
voluntarily waiving the right to purse [sic] any such controversy, claim, or
dispute against Zanios in any court or administrative forum and instead will
pursue them through arbitration.
 
I understand that if I decide to submit any dispute to
arbitration in accordance with this Arbitration Policy Statement, I must submit
a written request for arbitration to Zanios’s President within one (1) month
from the date of the incident in question, and I must respond within ten (10)
calendar days to each communication regarding the selection of an arbitrator,
the scheduling of an arbitration hearing, or any other matters related to the
arbitration proceeding.  If Zanios does
not receive a written request for arbitration from me within one (1) month, or
if I do not respond to any communication about the arbitration proceeding
within ten (10) calendar days, I understand and acknowledge that I will have
knowingly and voluntarily waived my right to arbitration on the incident in
question[.]  The arbitration shall be
held in Albuquerque, New Mexico.  The
parties shall each pay one-half of the cost of the arbitrator and each party
shall otherwise pay its own costs and attorneys’ fees.
 
If this Arbitration Policy Statement shall for any reason be declared
unenforceable, I knowingly and
voluntarily waive the right to a trial by jury in any action or judicial
proceeding which would otherwise have been subject to arbitration.
 
By signing below, I acknowledge that I have read this
Arbitration Policy Statement, understand its contents, and voluntarily agree to
abide by its terms.
 
After Mendivil suffered an injury in the
course of his employment, Zanios terminated his employment, allegedly for a
reason unrelated to the injury.  Mendivil
filed suit against Zanios under Chapter 451 of the Texas Labor Code, which
prohibits the discharge of or discrimination against an employee who files a
workers’ compensation claim in good faith or hires a lawyer to represent the
employee in a claim.  Tex. Lab. Code Ann. § 451.001 (West 2006).
In a motion to compel arbitration, Zanios alleged
that Mendivil’s signature on the APS represented his understanding that the
offer of employment was conditioned upon a promise to arbitrate his
claims.  Mendivil countered that no valid
arbitration agreement existed because the APS lacked proper consideration and mutual
language requiring Zanios to arbitrate, to be bound by arbitration, or to perform
any mutual promise.  Mendivil maintained
that the APS was illusory because it contained no provisions by which Mendivil
could either enforce the arbitration agreement against Zanios or require Zanios
to arbitrate because Zanios had not promised anything. Mendivil likewise declared
the APS unconscionable in part because the provisions required that he arbitrate
his claims in Albuquerque, New Mexico, give notice of his intent to arbitrate
within thirty days of any incident or waive arbitration, respond to all letters
from Zanios within ten days or risk waiving his opportunity to arbitrate, and pay
one-half of any arbitration fees.
In response, Zanios argued that no case law
requires an employer’s reciprocal, mirrored promise to arbitrate any claims it
might have against an employee in exchange for the employee’s promise to
arbitrate, and contended that an employer need only provide “some”
consideration to render an arbitration agreement enforceable.  According to Zanios, it had provided
sufficient consideration to form a valid arbitration agreement with Mendivil by
agreeing: (1) to binding arbitration; (2) to be bound by the result; (3) to
arbitrate in a particular venue; (4) to have arbitration conducted under
particular rules; (5) to pay for one-half of the arbitration fee; (6) to pay
its own attorney’s fees and costs; and (7) to forego recovery of its attorney’s
fees.  Zanios informed the trial court
that it would agree to conduct arbitration in El Paso and pay the entirety of
arbitration costs up to $10,000.
Without expressly finding the APS to be a
valid agreement, the trial court granted the motion to compel, ordered that the
parties arbitrate in El Paso, and directed that Zanios pay all arbitration fees
up to $10,000, after which Mendivil and Zanios would each pay one-half of the
arbitration fees in excess of $10,000.
WAS THERE AN AGREEMENT
TO ARBITRATE?
In Issues One and Five Mendivil generally
challenges the order compelling arbitration as written and as modified by the
trial court.  In Issue Four, he contends
the APS was unconscionable.  In Issues
Two and Three, he complains that the APS is illusory and invalid for lack of
mutual consideration.  We review de novo a trial court’s determination
regarding the validity of an agreement to arbitrate.  J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
Applicable Law
            It is
undisputed that the Federal Arbitration Act (FAA), which typically governs
arbitration provisions in contracts involving interstate commerce, applies here.  See 9
U.S.C.A. §§ 1-16 (West 2009); In re
Rubiola, 334 S.W.3d 220, 223 (Tex. 2011). 
To compel arbitration under the FAA, a party must establish that there
is a valid arbitration agreement and that the claims fall within the scope of
the agreement.  In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex.
2006).  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.
When determining the validity of arbitration
agreements that are 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).  When
deciding whether a party has met its burden to establish a valid agreement to
arbitrate, we do not resolve doubts or indulge a presumption in favor of
arbitration.  J.M. Davidson, Inc., 128 S.W.3d at 227. 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.  Nonetheless, although a court
may enforce agreements to arbitrate disputes, a court cannot order arbitration
in the absence of such an agreement.  Freis v. Canales, 877 S.W.2d 283,
284 (Tex. 1994), citing United
Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582, 80 S.Ct. 1347, 1352–53, 4 L.Ed.2d 1409 (1960); see 9 U.S.C. § 2.
Contract Elements
 The
elements required for the formation of a valid and binding contract include:
(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). 
An agreement to arbitrate, like other contracts, must also 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.).  Arbitration clauses generally do not require mutuality of obligation so
long as adequate consideration supports the underlying contract.  In re Lyon Financial Services, Inc., 257
S.W.3d 228, 233 (Tex. 2008), citing In re FirstMerit Bank, N.A., 52
S.W.3d 749, 757 (Tex. 2001).  Thus,
when an agreement to arbitrate is part of a larger underlying contract, the
remainder of the contract may constitute sufficient consideration for the
arbitration provision.  In re Palm Harbor Homes, Inc., 195
S.W.3d at 676; In re AdvancePCS, 172
S.W.3d at 607.
However, stand-alone arbitration agreements
require binding promises from both sides as they are the only consideration
rendered to create a contract.  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); Vanegas v. American Energy Services, 302
S.W.3d 299, 302 (Tex. 2009) (“‘A bilateral contract is one in which there are
mutual promises between two parties to the contract, each party being both a
promisor and a promisee.’”), citing
Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943).
In In
re Halliburton Co., an employer provided notice to its employee that it was
adopting a new dispute resolution program, by which both the employer and all
employees were required to submit all employment disputes to binding
arbitration and waived all rights each may have to a trial by jury for
employment-related matters.  In re Halliburton, Co., 80 S.W.3d 566, 568-69
(Tex. 2002).  The employer informed its
employees if an employee accepted or continued employment after January 1,
1998, the employee agreed to resolve all legal claims against the employer
through the new program rather than in the courts.  In re
Halliburton, Co., 80 S.W.3d at 569. 
The Texas Supreme Court determined that the new dispute resolution
program was not dependent upon the employee’s continuing employment but rather
that the employee accepted the terms of the new program as a matter of law by
continuing employment beyond January 1, 1998. 
In re Halliburton, Co., 80
S.W.3d at 569.  Because both the employer
and the employee mutually promised to submit all employment disputes to
arbitration, thus binding both parties to the terms of the new dispute
resolution program, the Texas Supreme Court found that the new dispute
resolution agreement between the employer and the at-will employee was
supported by sufficient consideration and was not illusory.  In re
Halliburton, Co., 80 S.W.3d at 566, 569-70.
Thus, employers and their at-will employees
are not precluded from forming other contracts between themselves, “so long as
neither party relies on continued employment as consideration for the
contract.”  J.M. Davidson, Inc., 128 S.W.3d at 228; In re Polymerica, L.L.C, 296 S.W.3d 74, 76 (Tex. 2009) (where
employer could not avoid its promise to arbitrate by amending a termination
provision or terminating it altogether, the dispute resolution plan was not
illusory).  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.  In re
Halliburton, Co., 80 S.W.3d at
569-70; see also J.M. Davidson, Inc.,
128 S.W.3d at 228.
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); compare In re Halliburton, Co.,
80 S.W.3d at 569-70 (because mutual promises to submit employment disputes to
arbitration bound both parties to their promises to arbitrate, sufficient
consideration existed to support the arbitration agreement between the employer
and the at-will employee).  An agreement
to arbitrate may be illusory if a party can unilaterally avoid the agreement to
arbitrate.  In re Palm Harbor Homes, Inc., 195 S.W.3d at 677; J.M. Davidson, Inc., 128 S.W.3d at
228-30; In re Halliburton Co., 80 S.W.3d
at 569-70.  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.
Analysis
            The stand-alone
APS requires binding promises from both Zanios and Mendivil as such promises
are the only consideration provided for the formation of the contract.  In re AdvancePCS,
172 S.W.3d at 607; see also In re 24R,
Inc., 324 S.W.3d at 566-67.   But Zanios
never expressly agreed to arbitrate its disputes with Mendivil nor to be bound
by the result of such arbitration.  Clearly,
the language of the purported contract does not apply to any claims that Zanios
may assert against Mendivil.  Indeed, other
than Zanios’ recital of consideration, there are only two other recitals that
are not wholly burdensome to Mendivil alone: (1) the statement identifying the
arbitration venue; and (2) the allocation of arbitration costs as well as
attorney’s fees and costs.
While the benefits to Zanios are clear,
those to Mendivil are not.  Zanios did
not agree to waive a trial by jury and did not agree to resolve any controversy,
claim, or dispute that it may have against Mendivil by final and binding
arbitration.  We are unable to discern
from the APS that Zanios has made a mutual, binding promise to Mendivil.  When a promise does not bind a promisor, the
promise is illusory.  In re 24R, Inc., 324 S.W.3d at 564,
567.  Had Mendivil sought to compel
Zanios to arbitrate under the terms of the APS, he would be unsuccessful as no
provision therein binds Zanios to perform such obligation or to be bound by the
arbitration result.  Consequently, because
the APS lacks binding promises from each party as required for the formation of
a contract, it lacks the requisite consideration and is illusory.  In re
AdvancePCS, 172 S.W.3d at 607; see
also In re 24R, Inc., 324 S.W.3d at 566-67.
Zanios failed to prove the existence of a
valid arbitration agreement in the trial court. 
Because there was no valid arbitration agreement, the trial court erred
in compelling arbitration.  In re Dillard Dep’t Stores, Inc., 186
S.W.3d at 515.  We sustain Issues Two and
Three.  Our resolution of these issues
renders it unnecessary for us to consider Issues One, Four, and Five.
We reverse and remand for further
proceedings.
 
                                                                        ANN
CRAWFORD McCLURE, Chief Justice
 
January 11, 2012
 
Before McClure, C.J., Antcliff, J., and Chew, C.J., (Senior)
Chew, C.J., (Senior), sitting by assignment

