Casa Ford, Inc. v. Jose Armendariz ( 2022 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
CASA FORD, INC., § No. 08-20-00084-CV
Appellant, § Appeal from the
v. § 171st Judicial District Court
JOSE ARMENDARIZ, § of El Paso County, Texas
Appellee. § (TC#2019-DCV-2148)
SUBSTITUTED OPINION
Appellee’s Motion for Rehearing is hereby denied. The opinion issued on August 23,
2021 is withdrawn, and the following is the substituted opinion of this Court.
Arguing that the arbitration agreement at issue is valid and Appellee’s (the
“Employee”) age discrimination claim falls within the agreement, Appellant Casa Ford, Inc.
(the “Company”) appeals the trial court’s order denying its motion to stay proceedings and
compel arbitration. We reverse the trial court’s ruling, uphold the arbitration agreement,
strike the attorneys’ fees provisions, and remand to the trial court to enter an order consistent
with this opinion.
BACKGROUND
After decades on the job, the Employee agreed to the Company’s Federal
Arbitration Act-based arbitration policy (the “Agreement” or “Arbitration Agreement”) as
a condition of continued employment. When the Employee was terminated and filed an
age discrimination claim, the Company filed a motion to compel arbitration. The Employee
disputed the validity of the Agreement before the trial court on the basis of substantive
unconscionability due to two provisions requiring Employee to pay his own attorneys’ fees.
Specifically, the Agreement states:
You and the Company will be responsible for the fees and costs of your own
legal counsel, if any, and any other expenses and costs, such as costs,
associated with witnesses or obtaining copies of hearing transcripts.
. . .
Representation by Counsel: Both you and the Company may be represented
by counsel at arbitration at each parties’ own expense.
However, the Agreement also states the arbitrator “has the authority to award any
remedy that would have been available to you had you litigated the dispute in court under
applicable law.”
The applicable law in this case pertains to an age discrimination claim under the
Texas Commission on Human Rights Act—Texas Labor Code Chapter 21, wherein an
Employee may pursue attorneys’ fees. TEX.LAB.CODE ANN. § 21.259. Attorneys’ fees
should be awarded to the prevailing plaintiffs in civil rights cases to the degree necessary
to fairly compensate attorneys for the value of their work. See e.g., Blanchard v. Bergeron,
489 U.S. 87, 95-96 (1989)(supporting appropriate attorney compensation to encourage
successful civil rights litigation for the benefit of the aggrieved and society at large); Pitts
v. Dallas County Bail Bond Board, 23 S.W.3d 407, 419 (Tex.App.—Amarillo 2000, pet.
denied)(op. on reh’g)(using U.S. Supreme Court guidance on section 1988 claims to
support attorney fees award to prevailing civil rights plaintiff absent special circumstances
for denial); Texas Education Agency v. Maxwell, 937 S.W.2d 621, 623 (Tex.App.—
Eastland 1997, pet. denied)(supporting the award of attorneys’ fees when
plaintiffs’constitutional rights were found to have been violated); Black v. Pan Am. Labs,
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L.L.C., No. A-07-cv-924-ly, 2012 WL 12950044, at *2 (W.D. Tex. Feb. 15,
2012)(reinforcing that “a prevailing plaintiff in a civil-rights action is presumptively entitled
to reasonable attorney’s fees, unless a showing of ‘special circumstances’ is made that
would deem such an award unjust” in an employment discrimination case).
DISCUSSION
Issues
Appellant’s issues are whether the Arbitration Agreement provisions requiring each
party to pay its own attorney’s fees substantively unconscionable, and if so, are the provisions
severable from the Agreement? Did the trial court err in denying the company’s motion to
stay proceedings and compel arbitration?
Applicable Law
Arbitration agreements regarding disputes between employers and employees are
generally enforceable, and favored, if there is valid contract covering the employee’s claim.
See In re Poly–America, L.P., 262 S.W.3d 337, 348 (Tex. 2008); In re Oakwood Mobile
Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999)(per curiam). The Federal Arbitration Act
(the “FAA”) provides that a written agreement to arbitrate a controversy is valid and
enforceable except when equitable or legal grounds call for its revocation. 9 U.S.C.A. § 2;
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).
Once an employer establishes that an arbitration agreement covering an employee’s
claim exists, an employee opposing arbitration must show a defense to enforcing the
agreement. See In re Poly–America, L.P., 262 S.W.3d at 348. The defense at issue in the
present case is substantive unconscionability. Substantive unconscionability here addresses
fairness and public policy as reflected in the underlying claim’s statute and whether a
complainant would be able to realize his statutory rights and remedies within the context
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of arbitration. See e.g., In re Olshan Foundation Repair Co., LLC., 328 S.W.3d 883, 892
(Tex. 2010); In re Odyssey Healthcare, Inc., 310 S.W.3d 419, 422 (Tex. 2010); Security
Service Federal Credit Union v. Sanders, 264 S.W.3d 292, 297-98 (Tex.App.—San
Antonio 2008, no pet.).
The courts determine arbitration agreement validity according to standard contract
principles while favoring arbitration, rendering an agreement to arbitrate invalid only when
it contains substantively unconscionable material terms. See J.M. Davidson, Inc. v.
Webster, 128 S.W.3d 223, 227-28 (Tex. 2003); Wright v. Hernandez, 469 S.W.3d 744, 756
(Tex.App.—El Paso 2015, no pet.). If the substantively unconscionable provisions do not
constitute the agreement’s main purpose, courts may sever an illegal or an unenforceable
provision and enforce the remainder of the agreement. Hoover Slovacek L.L.P. v. Walton,
206 S.W.3d 557, 565 (Tex. 2006); Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex.App.—
Dallas 1989, writ denied).
Standard of Review
We review the trial court’s determination de novo, as the issue on appeal regards
the validity and enforceability of an arbitration agreement. See J. M. Davidson, Inc., 128
S.W.3d at 227; In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009)(orig.
proceeding); ReadyOne Industries, Inc. v. Casillas, 487 S.W.3d 254, 258 (Tex.App.—El
Paso 2015, no pet.); see generally TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (“In a
matter
subject to the Federal Arbitration Act, a person may take an appeal or writ of error to the
court of appeals from the judgment or interlocutory order of a district court . . . .” [Internal
citation omitted]).
Arbitration Agreement
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In the present case, the facts are undisputed. The Company met its initial burden to
show, and the Employee did not dispute, that an arbitration agreement exists, and the
Employee’s age discrimination claim lies within its parameters.
Substantive Unconscionability
After showing an arbitration agreement applicable to the Employee’s claim, the
burden shifted to the Employee to show a defense to enforcing the agreement. Here, the
Employee argues the Agreement is substantively unconscionable based on the two
provisions requiring each party to pay its own attorneys’ fees despite the litigant’s right for
a court to award a reasonable attorneys’ fees as part of the costs to a prevailing plaintiff in
an age discrimination action under Texas Labor Code section 21.259. The Company posits
the attorneys’ fees provisions are not unconscionable because they simply state the
American Rule, even though the provisions do not specify “unless authorized by statute or
contract.” The Employee argues because the attorneys’ fees provisions are clear, specific,
and unqualified, the parties are obligated to pay their own attorneys’ fees.
We agree with the Employee’s interpretation of the attorneys’ fees provisions despite
the provision generally authorizing the arbitrator to award remedies. The two attorneys’ fees
provisions embedded in the Arbitration Agreement effectively disavow the Employee of his
statutory right for the arbitrator to exercise their discretion under Texas Labor Code section
21.259(a) to award attorneys’ fees by clearly and specifically taking attorneys’ fees out of
the scope of an arbitration award.
“By agreeing to arbitrate a statutory claim, a party does not forgo the substantive
rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a
judicial, forum.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
628 (1985). In Hadnot v. Bay, Ltd., 344 F.3d 474, 478 (5th Cir. 2003), the Fifth Circuit
rendered unconscionable a provision eliminating punitive damages for Title VII
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discrimination claims because it abridged an employee’s statutory rights. In Security
Services Federal Credit Union, 264 S.W.3d at 300–01, our sister court similarly rendered
unconscionable a provision eliminating statutory remedies available under the Deceptive
Trade Practices Act. Additionally, in In re Poly-America, L.P., 262 S.W.3d at 352, the
Texas Supreme Court held unconscionable arbitration agreement provisions eliminating
reinstatement and punitive damages available under the Worker’s Compensation Act
because the remedies are a “non-waivable legislative system for deterrence necessary to
the nondiscriminatory and effective operation of the Texas Workers’ Compensation system
as a whole . . . .”
Awarding a prevailing plaintiff attorneys’ fees in a claim under Texas Labor Code
section 21.259 is part of a measured legislative decision for the public policy purpose of
endeavoring to eliminate discrimination in the workplace by making the complaint process
accessible to employees who have been aggrieved. See e.g., Ridge Nat. Res., L.L.C. v.
Double Eagle Royalty, L.P., 564 S.W.3d 105, 137–38 (Tex.App.—El Paso 2018, no pet.);
see also Hensley v. Eckerhart, 461 U.S. 424, 429 (1983)(“The purpose of § 1988 is to
ensure ‘effective access to the judicial process’ for persons with civil rights
grievances.”)(quoting H.R.Rep. No. 94-1558, p. 1 (1976)). We have previously found that
contract provisions are substantively unconscionable when they deny a statutory remedy
that exists for the public policy purpose of deterring certain behavior. See Ridge Nat. Res.,
L.L.C., 564 S.W.3d at 135–36.
If we were to allow arbitration agreement provisions requiring each party to pay its
own attorneys’ fees without regard for a finding of liability against the employer, we would
be undercutting the legislature’s intent by allowing employers to simply move these claims
to an arbitral forum. Id. The Texas Supreme Court has explained that “it would be
unconscionable for an arbitration agreement to mandate arbitration of a statutory claim and
at the same time eliminate the rights and remedies afforded by the statute.” Venture Cotton
Co-op. v. Freeman, 435 S.W.3d 222, 229 (Tex. 2014). Accordingly, we find the attorneys’
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fees provisions in the Arbitration Agreement are substantively unconscionable. Appellant’s
first issue is overruled.
Severability
The next question is whether the entire Arbitration Agreement is invalid or whether
the attorney fee provisions should be severed and the Agreement saved. The answer turns
on whether the main purpose of the Agreement would be maintained absent the attorney
fee provisions. See Hadnot, 344 F.3d at 478; Williams v. Williams, 569 S.W.2d 867, 871
(Tex. 1978).
The Employee argues the entire Arbitration Agreement is invalid and the attorneys’
fees provisions may not be severed from the Agreement because first, there is no severability
clause in the Agreement, second the Agreement states that it “can be changed, modified, or
terminated only as specifically stated” in the Agreement, and the court cannot judicially
rewrite the Agreement. Third, the Employee argues that the entire Arbitration Agreement is
invalid because “the unconscionable limitation of [] remedies is in fact part of the main
purpose of the arbitration policy . . . to limit [the Company’s] liability exposure to
employees.” The Employee argues that considering the Arbitration Agreement’s purpose
simply to arbitrate rather than to litigate is a superficial approach not considering the “why”
behind the policy as evidenced by the agreement language stating, “‘Casa Ford believes that
it is in the best interests of both its employees and the Company to resolve those disputes in
a forum that provides the fastest, least expensive and fairest method for resolving them.’”
The Employee argues the agreement term “abrogating employees’ statutory remedies is thus
part and parcel of [the Company’s] stated purpose of resolving disputes in the ‘least
expensive’ manner, not just a peripheral provision.”
The Company acknowledges there is no severability clause in the Agreement.
However, the Company argues if the court finds the attorneys’ fees requirements
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substantively unconscionable, it should sever the provisions, as the main purpose of the
Agreement is to arbitrate employment disputes; moreover, given that the Agreement also
provides for the arbitrator to award remedies allowed in the litigation process, the Company
would have entered into the Agreement without the attorneys’ fees provisions.
While a severance clause evidences the parties’ intent for a contract to survive specific
invalid provisions, courts have relied on their inherent power to sever nonessential
unconscionable contract provisions. See e.g., Venture Cotton Co-op., 435 S.W.3d at 230;
Hadnot, 344 F.3d at 478. Whether provisions are nonessential to the contract, the relevant
inquiry is whether the parties would have contracted absent the unconscionable provision(s)
and whether the main purpose of the Agreement would be maintained absent the attorney fee
provisions. Ridge Nat. Res., L.L.C., 564 S.W.3d at 139; In re Kasschau, 11 S.W.3d 305, 313
(Tex.App.—Houston [14th Dist.] 1999, no pet.). See also Hadnot, 344 F.3d at 478; Williams,
569 S.W.2d at 871.
Although the Agreement articulates the Company’s “belief” that arbitration provides
“the fastest, least expensive and fairest method” of resolution, we do not equate that to the
proposition that the attorneys’ fees provisions were the main purpose of the agreement nor
that the parties would not have agreed but for the attorneys’ fees provisions. Because the
Employee is better off with the attorney fee provisions severed, we cannot conclude that the
Employee would have quit his job rather than be subjected to the same Arbitration Agreement
less its unconscionable attorneys’ fee provisions. Similarly, the Company’s assertion that (1)
the purpose of the Arbitration Agreement is to arbitrate employment disputes and (2) another
part of the Agreement states that the arbitrator “has the authority to award any remedy that
would have been available to you had you litigated the dispute in court under applicable law”
leads us to conclude that it would have entered into the Arbitration Agreement
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notwithstanding the attorneys’ fees provisions.
We understand the main purpose of the Arbitration Agreement to be to arbitrate
employment disputes. Given Texas precedent favoring arbitration as an intended lower-cost,
expedited way to resolve disputes compared to litigation, severing the invalid clauses rather
than invalidating the entire Arbitration Agreement is the appropriate judicial action when
severance does not take from the main purpose of the agreement. Ridge Nat. Res., L.L.C., 564
S.W.3d at 139; In re Poly-America, L.P., 262 S.W.3d at 347, 360. Appellant’s second issue
is sustained.
CONCLUSION
Accordingly, we uphold the Arbitration Agreement but strike the two attorneys’
fees provisions, reverse the trial court’s ruling and remand with instructions to enter an
order consistent with this opinion.
ovember 30, 2022 YVONNE T. RODRIGUEZ, Chief Justice
Before Rodriguez, C.J., Palafox, J., and Larsen, Senior Judge
Larsen, Senior Judge (Sitting by Assignment)
Palafox, J., Would Dissent
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