NANCY F. ATLAS, District Judge.
Pending before the Court in this disability and age discrimination action is Defendant Omni Hotels Management Corporation's ("Defendant" or "Omni") "Motion to Dismiss, or, in the Alternative, Motion to Compel Arbitration and Stay Litigation" (collectively, the "Omni Motion") [Doc. #10]. Also pending is Plaintiff Lia Presta's ("Presta" or "Plaintiff") "Motion for Partial Summary Judgment" [Doc. #11]. The Motions are fully briefed
The following facts are gleaned from Presta's First Amended Complaint [Doc. #3] and the undisputed matters of record. Presta, born in 1928, worked for a hotel located at Four Riverway in Houston, Texas, for approximately thirty-five years, including as a seamstress and in the laundry and housekeeping departments.
Omni temporarily closed the hotel in May or June of 2015 to repair flood damage and informed all employees not to report to work until Omni was able to assess the damage.
Having exhausted her administrative remedies, Presta filed her original complaint in federal court on March 24, 2017, and an amended complaint on April, 13, 2017,
Omni contends that Presta's claims are subject to the Omni Hotels Dispute Resolution Program and the mandatory arbitration provided thereunder. Presta contends that the Arbitration Agreement is unenforceable because it is illusory, unconscionable, and because there was no mutual assent.
Section 3 of the Federal Arbitration Act provides that, where claims in a lawsuit are properly referable to arbitration, the Court "shall" stay the trial of a lawsuit until the arbitration is complete. See 9 U.S.C. § 3; E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002). Evaluating a motion to compel arbitration requires determining "(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2007) (internal quotation marks omitted). The federal policy favoring arbitration, however, "does not apply to the determination of whether there is a valid agreement to arbitrate between the parties." Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008). "Instead, `to determine whether an agreement to arbitrate is valid, courts apply ordinary state-law principles that govern the formation of contracts.'" Nelson v. Watch House Int'l, L.L.C., 815 F.3d 190, 193 (5th Cir. 2016) (citing Carey, 669 F.3d at 205).
The Court may dismiss a lawsuit "when all of the issues raised in the district court must be submitted to arbitration." Adam Techs. Int'l, S.A. de C.V. v. Sutherland Global Servs., Inc., 729 F.3d 443, 447 n.1 (5th Cir. 2013) (quoting Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (holding district court has discretion to dismiss case where all issues are referred to arbitration)); see also Armstrong v. Assocs. Int'l Holdings Corp., 242 F. App'x 955, 959 (5th Cir. 2007) (noting that the Fifth Circuit "encourages district courts to dismiss cases with nothing but arbitrable issues because staying the action serves no purpose"); Grether v. South Point Pontiac/Cadillac, 2014 WL 1350907, *3 (W.D. Tex. Apr. 3, 2014).
Rule 56 of the Federal Rules of Civil Procedure mandates the entry of summary judgment against a party who fails to make a sufficient showing of the existence of an element essential to the party's case for which that party will bear the burden at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); see also Baton Rouge Oil and Chem. Workers Union v. ExxonMobil Corp., 289 F.3d 373, 375 (5th Cir. 2002). In deciding a motion for summary judgment, the Court must determine whether the movant has shown "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp., 477 U.S. at 322-23; Rodgers v. United States, 843 F.3d 181, 190 (5th Cir. 2016); Weaver v. CCA Indus., Inc., 529 F.3d 335, 339 (5th Cir. 2008).
Where the movant bears the burden of proof at trial on the issues at hand, as is the case here, it "bears the initial responsibility of demonstrating the absence of a genuine issue of material fact with respect to those issues." Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 718 (5th Cir. 1995); see also Brandon v. Sage Corp., 808 F.3d 266, 269-70 (5th Cir. 2015); Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005). If the moving party fails to meet its initial burden, the motion for summary judgment must be denied, regardless of the non-movant's response. ExxonMobil Corp., 289 F.3d at 375.
If the moving party meets its initial burden, the non-movant must go beyond the pleadings and designate specific facts showing that there is a genuine issue of material fact for trial. Brandon, 808 F.3d at 270; Littlefield v. Forney Indep. Sch. Dist., 268 F.3d 275, 282 (5th Cir. 2001). "A fact issue is `material' if its resolution could affect the outcome of the action." Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535, 538 (5th Cir. 2015); DIRECT TV Inc. v. Robson, 420 F.3d 532, 536 (5th Cir. 2006). Summary judgment "will not lie . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Hyatt v. Thomas, 843 F.3d 172, 177 (5th Cir. 2016).
The parties' pending Motions turn on the validity of the Arbitration Agreement. Omni maintains that the Arbitration Agreement is valid and enforceable and therefore moves to compel arbitration and to dismiss this suit or stay the litigation.
The Arbitration Agreement must be valid and enforceable in order for this Court to consider compelling arbitration. Under Texas law, agreements to arbitrate must be supported by consideration. Lizalde v. Vista Quality Markets, 746 F.3d 222, 225 (5th Cir. 2014); Nelson, 815 F.3d at 193 (citing Lizalde, 746 F.3d at 225). If a "purported bilateral contract is supported only by illusory promises, there is no contract." Lizalde, 746 F.3d at 225 (quoting Mendivil v. Zanios Foods, Inc., 357 S.W.3d 827, 832 (Tex. App.-El Paso 2012)). An arbitration agreement is illusory "[w]here one party has the unrestrained unilateral authority to terminate its obligation to arbitrate." Lizalde, 746 F.3d at 225. See Nelson, 815 F.3d at 193 (quoting Lizalde, 746 F.3d at 225); see also In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) ("An arbitration clause is not illusory unless one party can avoid its promise to arbitrate by amending the provision or terminating it altogether.").
An arbitration agreement that allows one party to modify or terminate the agreement, however, does not automatically render the agreement illusory. See Lizalde, 746 F.3d at 226. In the seminal Texas case, In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002), the Texas Supreme Court held that an employee's arbitration agreement was not illusory because "Halliburton [could not] avoid its promise to arbitrate by amending the provision or terminating it all together." Id. at 570. Although the Halliburton agreement allowed the employer to modify or terminate certain provisions, the agreement also included a savings clause providing that (1) "no amendment shall apply to a Dispute of which the Sponsor had actual notice on the date of amendment[]" and (2) "termination shall not be effective until 10 days after reasonable notice is given to Employees or as to Disputes which arose prior to the date of termination." Id. at 569-70. "Because of these two provisions, the Texas Supreme Court held that the employer could not `avoid its promise to arbitrate by amending or terminating [the arbitration agreement] altogether.'" Nelson, 815 F.3d at 193 (quoting Carey, 669 F.3d at 206); see also In re 24R, Inc., 324 S.W.3d at 567 (explaining that the Halliburton court "held that because the [arbitration agreement] contained a `savings clause'—including a ten-day notice provision and a provision that any amendments would only apply prospectively—that prevented the employer from avoiding its promise, the arbitration agreement was not illusory" (citing Halliburton, 80 S.W.3d at 570)).
In Lizalde v. Vista Quality Markets, the Fifth Circuit presented a three-part test to determine whether a "Halliburton-type savings clause sufficiently restrains an employer's unilateral right to terminate its obligation to arbitrate." See Nelson, 815 F.3d at 193-94. "[R]etaining termination power does not make an agreement illusory so long as that power (1) extends only to prospective claims, (2) applies equally to both the employer's and employee's claims, and (3) so long as advanced notice to the employee is required before termination is effective." Id. at 194 (quoting Lizalde, 746 F.3d at 226). "Though the Texas Supreme Court has not yet had the occasion to discuss Lizalde's three-part formulation, numerous decisions from Texas' intermediate appellate courts suggest that Lizalde appropriately tracked Halliburton and its progeny." Id. (citing Temp. Alts., Inc. v. Jamrowski, 511 S.W.3d 64, 68-70 (Tex. App.-El Paso 2014)); see Henry & Sons Construction Co. v. Campos, 510 S.W.3d 689, 695 (Tex. App.-Corpus Christi-Edinburg 2016) ("We believe that the Fifth Circuit has correctly assessed Texas law: where promises are to serve as the consideration for an arbitration agreement, the promise to arbitrate must remain mutually binding, with any modification or termination power subject to both advance notice and prospective application.")
It is clear that the Agreement in this case satisfies the second prong of Lizalde by applying equally to claims made both by Omni and by Presta.
As noted, the Arbitration Agreement contains the following savings clause:
Presta argues that the Arbitration Agreement is illusory because, under the savings clause, "Omni has the unilateral ability to modify or revoke [the Arbitration Agreement] after a dispute arises but before a claim is filed with the Judicial Arbitration Mediation Services ("JAMS")[,]" as required for a claim to be submitted "under the Program."
While the Texas Supreme Court has not explicitly defined the minimum requirements of an arbitration savings clause, see Temp. Alts., Inc., 511 S.W.3d at 67, the Fifth Circuit provided important guidance. "[A]rbitration agreements fail[] to meet Halliburton solely because the agreement contain[s] no express limitation on an employer's power to make unilateral changes to an arbitration agreement that have `retroactive effect,' meaning changes . . . that would strip the right of arbitration from an employee who has already attempted to invoke it, or changes that apply to disputes which had arisen and of which [the employer] had notice prior to the change. . . ." Nelson, 815 F.3d at 194 (internal citations and quotation marks omitted).
In Morrison v. Amway Corp., for example, the Fifth Circuit addressed the enforceability of an arbitration program of Amway Corporation, a nationwide seller of household products, which program governed Amway's relationship with its distributors. See Morrison, 517 F.3d at 250. Under the arbitration program's "Rules of Conduct" ("Rules"), Amway could amend the Rules upon publication in official Amway literature. See id. at 251, 253. The distributors argued that the arbitration agreement was illusory because, in part, it allowed Amway to apply the arbitration program to claims known to Amway prior to the program's establishment. See id. at 253. The Fifth Circuit agreed, noting that "[t]here are no Halliburton type savings clauses which preclude application of such amendments to disputes which arose (or of which Amway had notice) before the amendment." Id. at 257.
Likewise, in Carey v. 24 Hour Fitness, USA, Inc., the Fifth Circuit held that an arbitration agreement was illusory because its savings clause would not "prevent [the employer] from retroactively eliminating its arbitration policy, which is the critical inquiry for determining whether an agreement is illusory." See Carey, 669 F.3d at 207. Though the Fifth Circuit described retroactivity in terms of an employer's ability to make "changes to the policy that would strip the right of arbitration from an employee who has already attempted to invoke it[,]" see id. at 205, the Court drew on Morrison and that case's reasoning regarding disputes of which both parties had notice. See id. ("Because Amway was able to amend its policy and thus renege on its promise to arbitrate even in the context of disputes already underway, we held that its agreement to arbitrate was illusory." (citing Morrison, 517 F.3d at 257)). The Fifth Circuit stated in Nelson that "unilateral changes to an arbitration agreement that have `retroactive effect'" include changes that apply to disputes of which an employer "had notice prior" to the change, Nelson, 815 F.3d at 194, thus drawing on both Morrison and Carey.
Because the savings clause in the Arbitration Agreement permits Omni to alter the terms of the Arbitration Agreement with respect to claims of which Omni is aware but which are not formally brought under the Program, the Agreement is illusory in violation of Texas law. The Agreement allows Omni to change or revoke the Agreement with respect to disputes of which Omni had prior notice. Omni does not deny that it received notice of the dispute at issue during the course of an EEOC investigation prompted by Presta's July 2016 charges.
Omni's contention that the employer's receipt of notice of an employee's claim is not determinative under Halliburton or Lizalde is unpersuasive. Omni invokes four state court decisions, two of which superficially support its position. The courts in Nabors Drilling USA, LP v. Pena and In re Champion Techs., Inc. upheld a savings clause that "no amendment shall apply to a Dispute for which a proceeding has been initiated pursuant to the [company's dispute resolution program] Rules. . . ." See Nabors Drilling USA, LP, 385 S.W.3d 103, 105 (Tex. App.-San Antonio 2012, pet. denied); In re Champion Techs., Inc., 222 S.W.3d 127, 131 (Tex. App.-Eastland 2006, pet. denied).
Omni also cites Henry & Sons Construction Co. v. Campos, in which the court held a different savings clause was illusory because it did not guarantee advance notice of any modification to the terms of the arbitration agreement. See 510 S.W.3d at 696-97. The agreement in Campos limited application of revisions of the arbitration agreement to claims based on events that took place after the revision's effective date, and thus to claims of which the employer necessarily did not have notice.
The Court is bound and persuaded by the reasoning in Halliburton, Lizalde, and Nelson. Halliburton held that the savings clause at issue was not illusory partly because amendments to or termination of the arbitration agreement by the employer would not apply to claims of which the employer had "actual notice." See Halliburton, 80 S.W.3d at 569-70. The Fifth Circuit therefore has concluded that arbitration agreements failed to meet Halliburton "solely because the agreement contained no express limitation on an employer's power to make unilateral changes to an arbitration agreement that have retroactive effect," including "changes that apply to disputes which had arisen and of which [the employer] had notice prior to the change." Nelson, 815 F.3d at 194 (internal citations and quotation marks omitted).
In the present case, the Arbitration Agreement's savings clause fails to restrict Omni's unilateral power to modify or terminate the arbitration agreement to "retroactive effect" with respect to claims, such as Presta's, of which Omni had prior notice. See id.; Halliburton, 80 S.W.3d at 569-70. Savings clauses that fail to do so are illusory under Halliburton and Nelson. See Nelson, 815 F.3d at 194; Morrison, 517 F.3d at 257. The Arbitration Agreement is likewise illusory as to this dispute.
The mandatory arbitration provision in Defendant Omni's Arbitration Agreement does not contain an express limitation on Omni's power to make unilateral changes to the Agreement that apply to disputes that have arisen and of which Omni had notice. It therefore renders the Arbitration Agreement illusory as to this dispute. Accordingly, it is
In its Objections & Reply [Doc. #17], Omni objected to the Declaration of Lia Presta, attached as Exhibit 1 to Presta's Response to the Omni Motion. See Declaration of Lia Presta [Doc. #12-1]. Omni contends that certain statements in the Declaration are conclusory and constitute hearsay, among other things. See Omni Objections & Reply [Doc. #17], at 2. Because the Court does not rely on Presta's Declaration in deciding the pending Motions, Omni's objections are
Omni also cites Watts Regulator Co. v. Foremost Cnty. Mutual Ins. Co., No. 09-16-00033-CV, 2016 WL 4045502 (Tex. App.-Beaumont 2016, pet. filed). On July 14, 2017, the Texas Supreme Court granted review and vacated judgement of a similar case, Watts Regulator Co. v. Tex. Farmers Ins. Co., 498 S.W.3d 643 (Tex. App.-Fort Worth 2016).
In dicta, the Campos court noted an alternative reading of this savings clause that construes the meaning of "an action or event upon which a claim is based" as referring to the filing of an arbitration proceeding. See id. at 696-97.
