[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 10-13126 ELEVENTH CIRCUIT
Non-Argument Calendar NOVEMBER 9, 2010
________________________ JOHN LEY
CLERK
D.C. Docket No. 4:09-cv-00174-RLV
PERRY BETTS,
lllllllllllllllllllll Plaintiff - Appellant,
versus
SGE MANAGEMENT, LLC,
SGE ENERGY MANAGEMENT, LTD.,
STREAM SPE LTD.,
STREAM GEORGIA GAS SPE, LLC,
SGE TEXAS SERVICECO, LLC, et al.,
lllllllllllllllllllll Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(November 9, 2010)
Before BARKETT, MARCUS and KRAVITCH, Circuit Judges.
PER CURIAM:
Perry Betts filed a class-action complaint against Stream Energy; its multi-
level-marketing affiliate, Ignite; and a number of Ignite’s employees for allegedly
running an illegal pyramid scheme in violation of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1962. The defendants moved to dismiss
the action for improper venue on the basis of an arbitration clause in Betts’s
marketing contract with Ignite.1 See Fed. R. Civ. P. 12(b)(3); Lipcon v.
Underwriters at Lloyd’s, London, 148 F.3d 1285, 1290 (11th Cir. 1998). The
district court granted the defendants’ motion, and Betts has appealed.
Betts argues that the district court erred by dismissing his action in favor of
arbitration because the defendants’ promise to arbitrate was illusory and therefore
unenforceable. We review the enforcement of a contract’s arbitration clause de
novo. Emp’rs. Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316,
1321 (11th Cir. 2001).
Under the Federal Arbitration Act, 9 U.S.C. § 2, an arbitration agreement is
valid unless it fails to meet the general contracting requirements of the law
governing the agreement. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944
1
The parties agreed that the arbitrability of Betts’s claims against all the defendants
turned on the enforcement of the arbitration agreement in his contract with Ignite. We therefore
refer to the contract as an agreement with “the defendants,” where appropriate.
2
(1995). Texas law governs the parties’ agreement here, so we turn to state-law
principles regarding illusory promises in our assessment of Betts’s argument.
Texas contracts “must be based upon a valid consideration,” or “mutuality
of obligation.” Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, 408 (Tex. 1997).
“Consideration is a bargained for exchange of promises,” id., but an “illusory”
promise that fails to bind the promisor cannot sustain a contract, see In re Palm
Harbor Homes, Inc., 195 S.W.3d 672, 676–77 (Tex. 2006). In accordance with
these general principles, the Texas Supreme Court has “recognized that an
arbitration agreement may be illusory if a party can unilaterally avoid the
agreement to arbitrate.” Id. at 677.
Betts argues that a modification clause in his contract would have allowed
the defendants to “avoid [their] promise to arbitrate by amending the [arbitration]
provision or terminating it altogether.” In re Halliburton Co., 80 S.W.3d 566
(Tex. 2002). In support of this argument, Betts notes that the contract’s “Policies
and Procedures” section gave Ignite the “sole discretion” to modify the agreement
and provided that any amendments would become binding “upon notice . . . or
publication.” By reserving a unilateral right to effect immediate changes to the
contract, Betts argues, the defendants reserved an “option to arbitrate” without
promising him anything in return.
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The defendants respond that under the contract’s “Terms & Conditions”
section, amendments would only “become effective 30 days after publication.”
During that interim, Betts could accept the changes, by continuing his marketing
relationship with Ignite, or reject them, by terminating the agreement. The
defendants argue that those restrictions on their ability to modify the contract
place it in a class of agreements approved by the Texas Supreme Court in In re
Halliburton, 80 S.W.3d 566.
Halliburton involved an employment arbitration agreement subject to
modification at the employer’s option. In an attempt to avoid arbitration, an
employee argued that the modification provision rendered the employer’s promise
to arbitrate illusory. But the Court rejected that argument. Given the agreement’s
notice requirement, the prospective effect of any amendments, and a 10-day delay
on the employer’s ability to terminate the agreement, the Court concluded that the
arbitration agreement was fully enforceable. Halliburton, 80 S.W.3d at 569–70.
The defendants here insist that their contract’s Terms & Conditions make
this case like Halliburton: any changes to the arbitration agreement would only
become effective after Betts had 30 days to decide whether to accept them. Betts,
on the other hand, argues that the contract’s Policies and Procedures—with their
provision for amendments effective “upon notice”—overrode the Terms &
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Conditions’ purported 30-day notice requirement. The first question before us,
then, is which of these provisions governs the parties’ relationship.
As it turns out, the contract answers this question for us: “In the event of a
conflict between these Policies and Procedures and the [Terms & Conditions], the
Policies and Procedures shall be deemed controlling.” Accordingly, the next
question is whether the defendants’ ability to immediately amend or terminate the
arbitration agreement made their promise to arbitrate illusory.
We conclude that the answer to that question under Texas law is yes. “[I]f
the terms of a promise make performance optional, the promise is illusory and
cannot constitute valid consideration.” J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 235 (Tex. 2003). And nothing in Betts’s contract would have
prevented the defendants from avoiding their promise to arbitrate by modifying the
agreement just before filing suit.
Yet an illusory promise does not necessarily make a contract unenforceable.
Halliburton involved a “stand-alone arbitration agreement[],” for which “binding
promises are required on both sides[,] as they are the only consideration rendered
to create a contract.” In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex.
2005). “But when an arbitration clause is part of an underlying contract, the rest
of the parties’ agreement provides the consideration.” Id.; accord In re Lyon Fin.
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Servs., Inc., 257 S.W.3d 228, 233 (Tex. 2008) (“[A]rbitration clauses generally do
not require mutuality of obligation so long as adequate consideration supports the
underlying contract.”). Betts has not argued that the whole contract here lacked
consideration, and we accept his tacit concession. He promised to pay Ignite for
training and an opportunity to earn income by marketing Stream Energy’s
services; this “bargained for exchange of promises” was sufficient to create a
binding contract. Fed. Sign, 951 S.W.2d at 408.
Under Texas law, as long as an arbitration agreement is “part of a larger
contractual relationship,” even provisions that create a unilateral “right to opt out
of arbitration” cannot undermine “the consideration of the underlying contract or
the promises to arbitrate.” Palm Harbor Homes, 195 S.W.3d at 677. Because the
underlying contract containing Betts’s promise to arbitrate was supported by
adequate consideration, the district court rightly enforced his promise.2
AFFIRMED.
2
Betts’s reliance on Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008), is
misplaced. For one thing, we are not bound by decisions from other circuits. And to the extent
Morrison stands for the proposition that illusory promises to arbitrate can invalidate contracts
otherwise supported by sufficient consideration, we decline to adopt the Fifth Circuit’s logic.
For similar reasons—and because we respect the Fifth Circuit’s pronouncement that its
unpublished decisions “are not precedent,” 5th Cir. R. 47.5.4—we are unmoved by the result in
Torres v. S.G.E. Management., L.L.C., No. 09-20778 (5th Cir. Oct. 5, 2010) (unpublished).
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