Contract-formation and Arbitrability under Delaware law [in Texas Court]

The Federal Arbitration Act ("FAA") preempts state law that would otherwise render arbitration agreements unenforceable in a contract involving interstate commerce. 9 U.S.C. § 2 (West 2008); Southland Corp. v. Keating, 465 U.S. 1, 10-11, 104 S Ct. 852, 858, 79 L. Ed. 2d 1 (1984); In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883, 888 (Tex. 2010).

  

The parties in this case do not dispute that the two Delaware LLC agreements involve interstate commerce.[9] Under the FAA, courts should apply ordinary state-law principles governing the formation of contracts when determining issues of substantive arbitrability. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985 (1995). As noted, the two Delaware LLC agreements provide that they should be "construed and enforced in accordance with and governed by the laws of the State of Delaware." The arbitration clauses contained in those agreements specify that any actual arbitration is to be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("the AAA Rules"), but the arbitration agreements themselves are expressly governed by Delaware law.

  

The Delaware Supreme Court has confirmed that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006). A Delaware LLC is bound by the arbitration provisions of its own governance and operation agreement, even where the LLC did not itself execute the agreement. Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 287 (Del. 1999). Delaware arbitration law mirrors federal policy in presuming the validity of arbitration agreements and resolving doubts about the scope of arbitrable issues in favor of arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983) (explaining federal law and policy); Willie Gary 906 A.2d at 78 (explaining Delaware law).

  

The question of whether parties have agreed to arbitrate their disputes is to be decided by the court, unless there is clear and unmistakable evidence that the parties delegated that question to the arbitrator instead. First Options, 514 U.S. at 944-45, 115 S. Ct. at 1924. Federal law refers gateway matters such as (1) whether the parties are bound by a given arbitration clause and (2) whether a certain dispute is within the arbitration agreement to the court in order to "avoid the risk of forcing parties to arbitrate a matter they may well not have agreed to arbitrate." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84, 123 S. Ct. 588, 591-92, 154 L. Ed. 2d 491 (2002).

 

The Delaware Supreme Court has adopted the majority federal view that a reference to the AAA Rules in an arbitration agreement serves as the type of clear and unmistakable evidence that the parties agreed to submit the question of the arbitrability of a particular dispute to the arbitrator. Willie Gary, 906 A.2d at 80. However, the court limited this interpretation to arbitration clauses that broadly refer all disputes to arbitration under the referenced rules. Id. Where an arbitration agreement specifically reserves carve-outs for judicial remedies, something more than reference to the AAA Rules is needed to establish that the parties intended to arbitrate the arbitrability of their dispute. Id. at 81.

  

Whether the court or the arbitrator decides the question of substantive arbitrability, Delaware law strongly favors arbitration. See Elf, 727 A.2d at 295. An arbitration clause, though, only covers claims that touch on the legal rights contained in the underlying contract or agreement within which the clause is found. See Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 159-60 (Del. 2002) (holding that a fiduciary duty claim was not covered by an arbitration provision in a stock underwriting agreement). Where an arbitration clause is broad in scope, courts will defer to it where a claim touches on any issues of contract rights or contract performance. Id. at 155.

 

STANDARD OF REVIEW

 

We review a trial court's grant of a motion to stay arbitration under an abuse-of-discretion standard. See McReynolds v. Elston, 222 S.W.3d 731, 739 (Tex. App.-Houston [14th Dist.] 2007, no pet.) (so holding on appeal of order denying motion to compel arbitration under TAA); see also Garcia v. Huerta, 340 S.W.3d 864, 868-69 (Tex. App.-San Antonio 2011, pet. filed) (so holding on appeal of order denying motion to compel arbitration under FAA); Sidley Austin Brown & Wood, LLP v. J.A. Green, 327 S.W.3d 859, 863 (Tex. App.-Dallas 2010, no pet.) (same); SEB, Inc. v. Campbell, No. 03-10-00375-CV, 2011 WL 749292, at *2 (Tex. App.-Austin Mar, 2, 2011, no pet.) (mem. op.) (same). Under this standard, we defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo. In re Labatt Food Service, L.P., 279 S.W.3d 640, 643 (Tex. 2009). Determining whether a claim falls within the scope of an arbitration agreement involves the trial court's legal interpretation of the agreement, and we review such interpretations de novo. McReynolds, 222 S.W.3d at 740.

SOURCE: HOUSTON COURT OF APPEALS -  14-11-00439-CV – 4/17/2012  

Arbitration is a creature of contract – No arbitration without prior agreement to arbitrate

 

State contract law governs arbitration agreements.

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, ___ 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 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.)

  

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.)

SOURCE: EL PASO COURT OF APPEALS - 08-11-00091-CV – 4/25/2012

El Paso Court of Appeals sustains challenge to stand-alone arbitration requirement on the ground that did not impose mutual obligations on employer and at-will employee

  
Stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. Because there was no valid arbitration agreement, the trial court erred in compelling arbitration. Judgment reversed. 
    

Daniel Mendivil v. Zanios Foods, Inc. (Tex. App. – El Paso,Jan. 11, 2012, n. pet h.)

  

OPINION BY CHIEF JUSTICE ANN CRAWFORD McCLURE

  

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.
 
CASE INFO: EL PASO COURT OF APPEALS –No. 08-10-00359-CV – Opinion released 1/14/11

REVERSED AND REMANDED: Opinion by Chief Justice Mcclure [ PDF ]
(Before Chew, Chief Justice Mcclure, Justice Antcliff)

08-10-00359-CV

Daniel Mendivil v. Zanios Foods, Inc.--Appeal from County Court at Law No 5 of El Paso County

No Meeting of the Minds on Terms of Mediation - No Actionable Breach of Agreement to Mediate

MEDIATOR'S LAWSUIT SEEKING TO COLLECT MEDIATION CANCELLATION FEE ON BREACH-OF-CONTRACT THEORY FAILS - ENFORCEABLE AGREEMENT WAS NOT ESTABLISHED In this appeal from a rather unusual case on the ADR litigation front, Houston's 14th Court of Appeals last week affirmed the trial court's grant of summary judgment against a mediator who had sued an attorney for damages following a mediation that did not take place as scheduled. Both the trial court and reviewing court found that there was no agreement on specific terms, such as the rather hefty cancellation fee, and in-person attendance by the client. A mere letter stating the terms to govern the mediation followed by silence on the part of the attorney (against whom the claim of breach of mediation-agreement was brought) did not suffice the establish meeting of the minds element under contract formation principles. Moreover, the client who could not attend in person was willing to be available by telephone. The Levin Law Group, PC v. Sigmon (Tex.App.- Houston [14th Dist.] Jan. 21, 2010)(Sullivan) (no breach of agreement to mediate on specific terms that were not agreed to, silence not assent, no meeting of the minds on cancellation fee, unforceable contract / agreement to mediate under specific terms not formed) EXCERPT FROM THE APPELLATE OPINION BY JUSTICE KENT SULLIVAN:

Background

On January 25, 2008, Allan G. Levine, an attorney for one of the plaintiffs in the underlying civil lawsuit, contacted LLG to obtain potential dates for scheduling mediation of the dispute with Alan F. Levin, the principal shareholder of LLG. After obtaining several available dates, Levine contacted Sigmon, the defendant’s attorney, and Don Fogel, the other plaintiff’s attorney in the underlying case. After checking their respective calendars, the attorneys “settled on February 8, 2008” to mediate the underlying dispute.

Levine notified Levin’s office and confirmed the date. LLG faxed a letter containing information regarding the mediation to all three attorneys on January 29, 2008. This letter provided: “In the absence of [two weeks’] advance written notice the attorneys are responsible to see that the mediator is promptly paid fifty percent (50%) of the total mediation fee as an agreed cancellation/rescheduling fee.” LLG also faxed to the attorneys an “Attorney Confidential Information Sheet and Request for Mediation” form (the “mediation request form”) and a “Rules for Mediation” form (the “mediation rules form”).

Sigmon neither completed nor signed the mediation request form. The mediation rules form contained the following paragraph:

CANCELLATION/RESCHEDULING FEE AGREEMENT. ONCE A CASE HAS BEEN SET FOR MEDIATION, THE ATTORNEYS AND THE PARTIES RECOGNIZE THAT THE MEDIATOR’S CALENDAR HAS BEEN RESERVED, AND THEY MUST THEREFORE PROVIDE THE MEDIATOR AT LEAST TWO (2) WEEKS ADVANCE WRITTEN NOTICE OF CANCELLATION/RESCHEDULING. IN THE ABSENCE OF SUCH ADVANCE WRITTEN NOTICE, THE ATTORNEYS AND PARTIES AGREE TO AND SHALL PAY THE MEDIATOR FIFTY PERCENT (50%) OF THE TOTAL MEDIATION FEE FOR THE DAY(S) AS AN AGREED CANCELLATION/RESCHEDULING FEE. THIS RULE ALSO APPLIES TO MEDIATIONS SCHEDULED LESS THAN TWO (2) WEEKS IN ADVANCE OF THE MEDIATION DATE.

Sigmon’s client in the underlying suit was unable to attend the mediation in person, but was willing to be available by telephone; Sigmon was available and prepared to attend the mediation on his client’s behalf. Fogel objected to the lack of personal attendance by Sigmon’s client, and the mediation was cancelled.

In April 2008, LLG filed suit against Sigmon, alleging breach of contract because Sigmon refused to pay the cancellation fee listed in the mediation request form. After generally denying the allegations and asserting several affirmative defenses, Sigmon filed a traditional motion for summary judgment.

In the summary-judgment motion, Sigmon asserted (1) there was no agreement to mediate, either written or oral, (2) he did not agree to be personally obligated for any cancellation or rescheduling fees caused by his client or anyone else, and (3) his client’s intended appearance at the mediation via telephone was not a breach of any such agreement. In an affidavit attached to the motion, Sigmon stated, among other things:

· He made no agreement with respect to mediating the underlying suit;

· He made no agreement regarding the amount of or obligation for any cancellation or rescheduling fees;

· He did not reschedule or cancel the mediation;

· Fogel declined to go forward with the mediation when Sigmon’s client was unable to physically attend the mediation;

· Neither Sigmon nor his client “accepted, acquiesced, or otherwise agreed to the matters contained in (i) The Levin Law Group, P.C.’s letter of January 29, 2008, (ii) an unsigned pre-printed one page document entitled ‘Rules for Mediation,’ or (iii) a pre-printed uncompleted document entitled ‘Attorney’s Confidential Information Sheet and Request for Mediation.’”

LLG filed a response to Sigmon’s summary-judgment motion, in which it stated:

Sigmon consented to the scheduling of the mediation for February 8, 2008; he received the correspondence of January 29, 2008 with the Rules of Mediation and the Attorney’s Confidential Information Sheet and Request for Mediation; he did not object to the terms contained within those documents. Further, he received the January 30, 2008 letter reemphasizing the terms and made no objection.

LLG also attached affidavits from Levin and Levine. In his affidavit, Levin stated that because last-minute cancellations are a “huge problem” for mediators, he had implemented a cancellation policy. He stated that, in his experience, generally “all the attorneys are well familiar with the cancellation policy of this mediator as well as other quality mediators” but he “specifically call[s] the policy to the attorney’s attention every single time.”

In the affidavit, Levin also indicated that, in this specific situation, his staff forwarded a letter by facsimile to all three attorneys in the underlying case. In the first paragraph of the letter, he stated “I specifically alert you to Rule 19 dealing with cancellation/rescheduling fees.” Levin also specified the total mediation fee in this case was $6,375.00; thus the cancellation/rescheduling fee would be $3,187.50.

LLG also attached an affidavit from Levine, indicating that he contacted Levin’s assistant to obtain potential dates for mediation. Levine stated that after “dialoging” with Sigmon and Fogel, they settled on February 8, 2008, and Levine notified Levin’s office and confirmed the date. Levine averred that it was his belief the other attorneys understood personal attendance at the mediation was essential. He further stated that he recognized he and his clients were bound by the Rules of Mediation provided by Levin, including “the cancellation fee and the fact that the attorney and/or party who causes the cancellation is responsible to pay fifty percent (50%) of Mr. Levin’s total fee.” Levine explained he had never been asked by a mediator to sign any type of “formal agreement”, and he and all other “practicing, experienced attorneys who engage in mediation in Harris County, Texas, deem [themselves] and [their] clients bound to the Rules of Mediation once Mr. Levin and the date for mediation have been selected.”[1]

Sigmon replied to LLG’s response, objecting to much of the affidavit evidence. The trial court did not rule on these objections, but granted Sigmon’s summary-judgment motion on August 1, 2008. The judgment became final on September 17, 2008, and, after a motion for new trial was overruled by operation of law, this appeal timely ensued.

Discussion

I. Standard of Review [omitted]

II. Existence of a Contract

The parties agree there is no written contract in this case. LLG asserts, however, that “there is a fact issue concerning whether [Sigmon] accepted the terms of mediation by scheduling the date and failing to object to any of the terms contained in the mediation agreement,” thus precluding summary judgment.

The elements of written and oral contracts are the same and must be present for a contract to be binding. Wal-Mart Stores, Inc. v. Lopez, 93 S.W.3d 548, 555 (Tex. App.—Houston [14th Dist.] 2002, no pet.). A binding contract must have an offer and an acceptance; the acceptance must be in strict compliance with the terms of the offer. Advantage Physical Therapy, Inc. v. Cruse, 165 S.W.3d 21, 25 (Tex. App.—Houston [14th Dist.] 2005, no pet.). Generally, acceptance of an offer must be communicated to the offeror for a contract to be binding. Id. at 26. Thus, silence does not ordinarily indicate acceptance of an offer. See id. (citing Restatement (Second) of Contracts § 69(1) cmt. a (1981)); see also Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128, 132 (Tex. 2000) (noting that “as a general rule, ‘silence and inaction will not be construed as an assent to an offer’” (quoting 2 Williston on Contracts § 6:49 (4th ed. 1991))).

In this case, Levine was the only attorney who spoke with LLG and Sigmon about scheduling the mediation. In his affidavit, Levine does not indicate that, before Sigmon agreed to mediate the underlying dispute, Levine communicated either Levin’s mediation fee or cancellation/rescheduling charges. The parties agree that these terms were communicated to Sigmon after the mediation was scheduled. Thus, the fact that Sigmon agreed to mediate the dispute does not support an inference that Sigmon agreed to the mediation rules or cancellation fees. See Advantage Physical Therapy, Inc., 165 S.W.3d at 25 (acceptance must be in strict compliance with terms of offer).

In fact, Sigmon presented uncontroverted affidavit evidence that he never entered into an agreement to mediate the underlying suit under the terms and conditions specified by the letters from LLG, the mediation request form, or the mediation rules form. The only evidence LLG specifies to support its claim of an oral agreement to mediate under the written terms it provided is Sigmon’s “lack of objection” to these terms, i.e., Sigmon’s silence, after LLG faxed the written terms to him. But silence rarely indicates acceptance of an offer. See id. at 26; see also Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool, 52 S.W.3d at 132; Restatement (Second) of Contracts, § 69(1) (noting that assent may be inferred “[w]here an offeree takes the benefit of offered services with reasonable opportunity to reject them”).

Here, Sigmon did not take the benefit of the offered services with a “reasonable opportunity” to reject them. Ultimately, he did not take the benefit of the offered services at all. Further, the confirmation letter, mediation rules form, and mediation agreement form were faxed to Sigmon on January 29, 2008. Six days later, on Monday, February 4, 2008, Sigmon notified LLG that his client would be unable to physically attend the mediation. Thus, Sigmon’s purported lack of objection to the terms of the mediation does not indicate acceptance of LLG’s mediation rules. See Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool, 52 S.W.3d at 132; Advantage Physical Therapy, Inc., 165 S.W.3d at 26.

Additionally, it is uncontroverted that Sigmon was willing to attend the mediation on behalf of his client, and his client agreed to be available throughout the mediation by telephone. Levin and Levine both stated in their affidavits that they were willing to conduct the mediation under these conditions. The parties agree that Fogel objected to this format, and the mediation was cancelled as a result of Fogel’s objection.

Thus, if the rules for mediation require “personal attendance” as Levin states in his affidavit, Sigmon objected to the offered mediation terms by notifying LLG that his client would not be able to personally attend the mediation. If anything, this objection to LLG’s mediation terms could be deemed a counter-offer by Sigmon, which Levin and Levine accepted, but Fogel rejected. See, e.g., Lewis v. Adams, 979 S.W.2d 831, 834 (Tex. App.—Houston [14th Dist.] 1998, no pet.) (“It is elementary that an acceptance must not change or qualify the terms of an offer; if it does, there is no meeting of the minds between the parties because the modification then becomes a counteroffer.”). At any rate, the “communications between the parties and the acts and circumstances surrounding those communications” in this case indicate that there was no meeting of the minds, and thus no offer and acceptance, regarding the essential terms of the mediation. Wal-Mart Stores, Inc., 93 S.W.3d at 556.

Under these circumstances, we conclude that Sigmon conclusively established that he did not accept the terms of the mediation specified in the letters faxed by LLG, the mediation rules form, or the mediation agreement form—an essential element of LLG’s breach of contract claim. Cf. IHS Cedars Treatment Ctr. of Desoto, Tex., Inc., 143 S.W.3d at 798; see Advantage Physical Therapy, Inc., 165 S.W.3d at 25–26. Because LLG presented no evidence raising a genuine issue of material fact regarding this issue, the trial court properly granted summary judgment to Sigmon. We accordingly overrule LLG’s issue.

AFFIRMED: Opinion by Justice Kent Sullivan 14-08-01165-CV The Levin Law Group, P.C. v. Ernesto De Andre Sigmon Appeal from County Civil Court at Law No 4 of Harris County Trial Court Judge: Roberta Anne Lloyd TAGS: formation of contract, agreement to mediate / arbitrate, ADR - mediation costs, cancellation fee charges, meeting of the minds element in contract formation See related blog post by Victoria VanBuren on Karl Bayer's Disputing Blog: Texas Appeals Court Finds No ‘Meeting of the Minds’ in Dispute Over Mediation Cancellation Fee