                                                OPINION
                                         No. 04-11-00910-CV

                                   NABORS DRILLING USA, LP,
                                           Appellant

                                                   v.

      Eder PENA, Individually, Maria Enriqueta Pena, Individually, and as Next Friend of
                            Esmeralda and Edna Pena, Minors,
                                         Appellees

                     From the 49th Judicial District Court, Zapata County, Texas
                                       Trial Court No. 7,573
                             Honorable Jose A. Lopez, Judge Presiding

Opinion by:       Phylis J. Speedlin, Justice

Sitting:          Catherine Stone, Chief Justice
                  Phylis J. Speedlin, Justice
                  Rebecca Simmons, Justice

Delivered and Filed: August 29, 2012

REVERSED AND REMANDED

           Nabors Drilling USA, LP appeals the trial court’s order denying its motion to compel

arbitration. Because we hold that a valid agreement to arbitrate exists that covers the claims at

issue in this suit, we reverse the trial court’s order and remand for entry of an order compelling

arbitration and staying all other proceedings.
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                             FACTUAL AND PROCEDURAL BACKGROUND

          While working for Nabors Drilling USA, LP, Jesus Pena suffered a fatal heart attack.

The Pena family1 filed a wrongful death and survival action against Nabors. Nabors sought to

compel arbitration pursuant to its Dispute Resolution Program for its employees. The Pena

family opposed arbitration.        The trial court ultimately denied Nabors’ motion to compel

arbitration and this accelerated appeal followed.

                                        STANDARD OF REVIEW

          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). Whether

there is an enforceable 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). Once the trial court finds a

valid arbitration agreement, the burden then shifts to the party opposing arbitration to raise an

affirmative defense to enforcing arbitration. Id. If the party seeking to compel arbitration

establishes its right to arbitration and the opposing party does not defeat that right, 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.

          The parties concede that Nabors’ Dispute Resolution Program is governed by the Federal

Arbitration Act (“FAA”) and we concur.             When determining the validity of an arbitration

agreement that is subject to the FAA, we apply state law principles that govern the formation of


1
 Eder Pena, Individually, Maria Enriqueta Pena, Individually, and as Next Friend of Esmeralda and Edna Pena,
Minors, filed suit against Nabors on September 17, 2010.

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contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006); J.M. Davidson,

128 S.W.3d at 227-28.

                                                     ANALYSIS

           Nabors asserts that it has established the existence of a valid arbitration agreement and

that the Pena family’s claims fall within the scope of that agreement.             Therefore, Nabors

contends that the trial court abused its discretion by declining to order the parties to arbitration.

In response, the Pena family does not dispute the existence of an arbitration agreement—the

parties agree that Nabors’ Dispute Resolution Program contains an arbitration agreement. They

disagree only about whether the agreement to arbitrate fails for lack of consideration and is thus

unenforceable as a matter of law. Specifically, the Pena family argues the Dispute Resolution

Program does not contain a valid Halliburton 2 “savings clause” and therefore impermissibly

allows Nabors the right to unilaterally amend or terminate the agreement to arbitrate. The Pena

family specifically directs us to the following amendment and termination provisions within

Nabors’ Dispute Resolution Program:

           6. Amendment:

           A. This Program may be amended by Sponsor at any time by giving at least 10
           days’ notice to current Employees. However, no amendment shall apply to a
           Dispute for which a proceeding has been initiated pursuant to the Rules, unless
           otherwise agreed.

           B. Sponsor may amend the Rules at any time by serving notice of the
           amendments . . . However, no amendments of the Rules shall apply to a Dispute
           for which a proceeding has been initiated pursuant to the Rules unless otherwise
           agreed.

           7. Termination:

           This Program may be terminated by Sponsor at any time by giving at least 10
           days’ notice of termination to current Employees. However, termination shall not


2
    In re Halliburton Co., 80 S.W.3d 566, 569-70 (Tex. 2002) (orig. proceeding).

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       be effective as to Disputes for which a proceeding has been initiated pursuant to
       the Rules prior to the date of termination unless otherwise agreed.

Based on the above-quoted provisions, the Pena family contends that Nabors’ promise to

arbitrate is illusory, and therefore the arbitration agreement within the Dispute Resolution

Program is unenforceable. Thus, the trial court’s order declining to compel arbitration should be

affirmed.

Mutual Promises to Arbitrate

       Like other contracts, arbitration agreements must be supported by valid consideration.

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). “In the

context of stand-alone arbitration agreements, binding promises are required on both sides as

they are the only consideration rendered to create a contract.”          Id. at 567 (quoting In re

AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex. 2005) (per curiam)). A promise that does

not bind the promisor because the promisor retains the option of discontinuing performance is

illusory. 24R, 324 S.W.3d at 567; J.M. Davidson, 128 S.W.3d at 230 n.2 (“We note that most

courts that have considered this issue have held that, if a party retains the unilateral, unrestricted

right to terminate the arbitration agreement, it is illusory.”) (emphasis added). When a purported

bilateral contract is supported by nothing more than illusory promises, there is no mutuality of

obligation, and therefore, no contract. 24R, 324 S.W.3d at 567. We construe a contract in favor

of mutuality. Tex. Gas Utils. Co. v. Barrett, 460 S.W.2d 409, 412 (Tex. 1970).

Halliburton and its Progeny

       The Texas Supreme Court first addressed and rejected the argument that an arbitration

agreement was illusory in In re Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2002) (orig.

proceeding). An at-will employee of Halliburton argued that because the company retained the

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right to modify or discontinue its dispute resolution program, the company’s promise to arbitrate

was illusory and therefore unenforceable. See id. The Supreme Court disagreed, noting that

Halliburton’s actions were limited by two express provisions within the dispute resolution

program. Id. at 569-70. The first provision stated that “no amendment shall apply to a Dispute

of which the Sponsor [Halliburton] had actual notice on the date of amendment.” Id. The

second provision stated that any termination of the arbitration program “shall not be effective

until 10 days after reasonable notice of termination is given to Employees or as to Disputes

which arose prior to the date of termination.” Id. at 570. Therefore, based on the terms of the

arbitration agreement, Halliburton had to give its employees notice of any change to the program

and any amendments would only apply prospectively. See id. at 569-70. Because Halliburton

could not avoid its promise to arbitrate by amending or terminating the dispute resolution

program, the Supreme Court held the arbitration agreement was not illusory. Id. at 570; J.M.

Davidson, 128 S.W.3d at 230 (“In Halliburton, we rejected the argument that the arbitration

agreement at issue was illusory because, among other things, it required ten days notice of any

modification or termination and stated that any such amendment would apply prospectively

only.”).

       In 2005, the Supreme Court again considered whether an arbitration provision was

illusory in a dispute between a pharmacy benefits management company and its member

pharmacies. AdvancePCS Health, 172 S.W.3d at 605. The pharmacies argued that the provider

agreement allowed PCS to cancel the arbitration agreement at will, thus rendering its promise

illusory and the agreement without consideration. See id. at 607. The Supreme Court disagreed,

in part because an express provision within the agreement provided that “any obligations that

arise prior to the termination of the Agreement shall survive such termination.” Id. Based on



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that savings clause, the Supreme Court reasoned that PCS could not have unilaterally terminated

the agreement and thus avoided its obligation to arbitrate. Id. at 607-08.

       In 2009 and 2010, the Supreme Court again rejected the argument that an arbitration

clause was illusory because the agreement contained a limiting notice and savings provision that

prevented any change from having a retroactive effect. See In re Polymerica, LLC, 296 S.W.3d

74, 76 (Tex. 2009) (orig. proceeding) (dispute resolution plan had termination provision

requiring notice to employees and any termination or modification applied prospectively only);

see also In re Odyssey Healthcare, Inc., 310 S.W.3d 419, 424 (Tex. 2010) (orig. proceeding)

(agreement provided that “no such amendment or termination [by Odyssey] will alter the

arbitration provisions incorporated into this booklet with respect to, or reduce the amount of any

benefit payable to . . . you under the Plan in connection with, an Injury occurring prior to the date

of such amendment or termination,” and that “any such amendment or termination of the

arbitration provisions incorporated into this booklet shall not be effective until at least 14 days

after written notice has been provided to you”). Since Halliburton, the Supreme Court has

consistently held that when an arbitration agreement contains a savings clause that makes any

amendment or termination operate prospectively only, it is not an illusory agreement.

Nabors’ Dispute Resolution Program

       The Pena family contends that Nabors’ Dispute Resolution Program lacks mutuality

because it does not contain a proper Halliburton savings clause. Specifically, they argue that in

order not to be illusory, any arbitration agreement containing a modification or termination

provision must expressly state that a change in the agreement will not apply to a claim that has

arisen or is known to the employer.        Here, the savings clause found in Nabors’ Dispute

Resolution Program is limited to disputes where arbitration has been initiated. Therefore, the



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Pena family contends that Nabors can amend or terminate the agreement as to claims that have

accrued, or of which Nabors has knowledge, as long as it acts prior to the initiation of arbitration;

therefore, its agreement to arbitrate is illusory and unenforceable.

        The following illustrates the difference in the wording between the Halliburton savings

provision and the savings provision at issue here:

Halliburton                                               Nabors

“no amendment shall apply to a Dispute of “no amendment shall apply to a Dispute for

which the Sponsor [Halliburton] had actual which a proceeding has been initiated pursuant

notice on the date of amendment”                          to the Rules, unless otherwise agreed”

“termination shall not be effective until 10              “termination shall not be effective as to

days after reasonable notice of termination is            Disputes for which a proceeding has been

given to Employees or as to Disputes which                initiated pursuant to the Rules prior to the date

arose prior to the date of termination”                   of termination unless otherwise agreed”



See Halliburton, 80 S.W.3d at 569-70.

        The Pena family notes that Nabors had notice of its wrongful death claim on October 13,

2010, and an arbitration proceeding was not initiated until approximately one year later, on

October 14, 2011 3. Therefore, they maintain that under the facts of this lawsuit, and under the

contract terms of Nabors’ Dispute Resolution Program, Nabors had the unilateral right during

that time period to amend or terminate the Dispute Resolution Program. Thus, because Nabors

could have avoided its promise to arbitrate by amending or terminating the Dispute Resolution




3
  Nabors contends it initiated arbitration on October 14, 2010 when it sent a demand letter to the Pena family and
requested they submit their claims to final and binding arbitration pursuant to the Dispute Resolution Program.

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Program, the Pena family concludes Nabors’ promise to arbitrate is illusory and therefore

unenforceable. See id.

       At least four courts of appeals decisions, including one from this court, have rejected

arguments that the same, or substantially similar, arbitration agreements are illusory and have

upheld the arbitration agreements as enforceable. In Nabors Drilling USA, LP v. Carpenter, 198

S.W.3d 240, 248-49 (Tex. App.—San Antonio 2006, orig. proceeding), we held that Nabors

Drilling USA’s same agreement to arbitrate contained within its Dispute Resolution Program

was not illusory and did not suffer from a failure of consideration.          Comparing Nabors’

arbitration agreement to the agreement in Halliburton, we reasoned that, “Like the employer in

In re Halliburton, Nabors’s right to amend or terminate the [Dispute] Resolution Program is

qualified: any such amendment or termination of the arbitration agreement is subject to ten days

notice to the employee and is inapplicable to arbitration proceedings that have already been

initiated . . . As such, the promise to arbitrate is not illusory, and the agreement to arbitrate is

enforceable.” Id. at 248-49 (citing Halliburton, 80 S.W.3d at 570). Our sister courts of appeals

have similarly upheld arbitration agreements containing the same or substantially the same

savings provisions. See Nabors Wells Services, Ltd. v. Herrera, No. 13-08-00397-CV, 2009 WL

200987, at *4-5 (Tex. App.—Corpus Christi Jan. 27, 2009, orig. proceeding) (mem. op.)

(reaching the same result based on the same arbitration provision as in the instant case); see also

In re Champion Technologies, Inc., 222 S.W.3d 127, 131-32 (Tex. App.—Eastland 2006, orig.

proceeding) (reaching the same result based on substantially the same language); In re Kellogg

Brown & Root, 80 S.W.3d 611, 616 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding)

(reaching the same result based on substantially the same language).




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       In re Champion Technologies dealt with an argument similar to that being made by the

Pena family—that Halliburton is distinguishable because the savings clause in Halliburton

applied to all claims that were known or had arisen, instead of only those claims for which

arbitration had been initiated. Champion Technologies, 222 S.W.3d at 131-32. In rejecting the

idea that Halliburton was distinguishable, the court noted that Champion’s dispute resolution

program’s amendment and termination provisions required 30 days’ notice and stated that no

amendment or termination would be effective as to disputes for which an arbitration proceeding

had been previously initiated; the court concluded that such language was similar to that used in

Halliburton, and held that Champion’s agreement to arbitrate was not illusory. Id. The Eastland

court noted that the critical factor in its analysis of whether the arbitration agreement was

illusory was that, as in Halliburton, any changes by Champion to the dispute resolution program

would only have a prospective effect. Id. at 132. The court further relied on the fact that an

injured employee was required to initiate arbitration under Champion’s dispute resolution

program, and once proceedings were initiated, Champion could not avoid arbitration, stating,

       As the aggrieved parties, the real parties in interest were required by the terms of
       the Program to initiate arbitration in order to present their disputes for resolution.
       If they had done so, Champion could not have avoided its promise to arbitrate by
       either amending or terminating the Program itself or the ‘Rules.’ The Texas
       Supreme Court addressed an analogous situation in AdvancePCS Health wherein
       the court stated: ‘Had the pharmacies invoked arbitration rather than filing suit,
       PCS could not have avoided arbitration by terminating the Provider Agreement.
       Thus, the clause was not illusory.’ 172 S.W.3d at 607–08.

Id.

       The Pena family relies heavily on a California appellate court case, Peleg v. Neiman

Marcus Group, Inc., 140 Cal.Rptr.3d 38, 63-64 (Cal. App. 2d 2012), which declined to follow

Carpenter, Kellogg, and Champion, stating they are inconsistent with Halliburton and its

progeny.   In addressing whether an employment arbitration agreement was illusory, the

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California court reviewed and applied Texas law under a choice-of-law provision; the court

ultimately held that a unilateral modification provision which required only 30 days’ notice to

employees and expressly applied to any claim not yet filed with the American Arbitration

Association, including accrued and known claims, rendered the arbitration agreement illusory

under Texas law. Id. at 42. In reaching its decision, the California court stated that all claims

that have accrued, or of which the employer has knowledge, must be protected from any contract

changes in order for a stand-alone arbitration agreement to be upheld as not illusory under Texas

law. Id. at 61-62. Based on its reading of Texas law, the Peleg court criticized Carpenter,

Kellogg, and Champion as misapplying Halliburton because “[t]here [were] no Halliburton type

savings clauses which preclude[d] application of . . . amendments to disputes which arose (or of

which [the employer] had notice) before the amendment.” Id. at 64. Peleg is not controlling,

and we respectfully disagree with its analysis of Texas law.

                                          CONCLUSION

       In conclusion, although the notice and savings provisions within Nabors’ Dispute

Resolution Program do not mirror the provisions in Halliburton, we nonetheless hold that

Nabors’ arbitration agreement within its Dispute Resolution Program is not illusory, but is a

valid and enforceable agreement to arbitrate. Nabors’ right to amend or terminate the Dispute

Resolution Program is limited by requirements that Nabors provide at least ten days’ notice to

employees and that Nabors exempt from change any disputes for which arbitration proceedings

have been initiated. Therefore, Nabors does not have a unilateral right to avoid its agreement to

arbitrate which would negate consideration and render the agreement illusory. Because a valid

arbitration agreement exists that covers the claims alleged by the Pena family, and no defenses to

enforcement have been established, we conclude the trial court had no discretion but to compel



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arbitration. FirstMerit Bank, 52 S.W.3d at 753-54; Carpenter, 198 S.W.3d at 249. Accordingly,

we reverse the trial court’s order denying Nabors’ 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.



                                                       Phylis J. Speedlin, Justice




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