Whataburger Restaurants LLC v. Yvonne Cardwell

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS

WHATABURGER RESTAURANTS §
LLC, No. 08-13-00280-CV
§
Appellant, Appeal from the
§
v. County Court at Law Number Seven
§
YVONNE CARDWELL, of El Paso County, Texas
§
Appellee. (TC# 2013DCV0910)
§

OPINION

The opinion dated August 13, 2014, is hereby withdrawn and the following opinion is

substituted in its place.

Whataburger Restaurants LLC, Appellant, brings this interlocutory appeal of the trial

court’s order denying Whataburger’s motion to compel arbitration and motion to dismiss Yvonne

Cardwell’s personal injury suit. We reverse the trial court’s order and remand with instructions.

BACKGROUND

As a condition of employment, Whataburger employees are subject to the arbitration

“policy” set out in Whataburger’s employee handbook. When Appellee Yvonne Cardwell

became a Whataburger employee, she initialed and signed an acknowledgement sheet stating that
she understood Whataburger would submit claims or disputes related to employment, including

workplace injuries, to arbitration and that by accepting or continuing employment, she would be

required to submit any legally recognized claims or disputes to arbitration.

In February 2013, Cardwell filed suit against Whataburger for personal injuries sustained

in the course of her employment as a dishwasher claiming that Whataburger’s “alleged Arbitration

Agreement and Injury Plan or . . . Occupational Benefit Plan” are void and invalid for fifteen

specified reasons. In response to Whataburger’s motion to compel arbitration and motion to

dismiss, filed the afternoon prior to the hearing, Cardwell argued the arbitration agreement was

invalid, that Whataburger had failed to meet its burden of proving the existence of an enforceable

arbitration agreement, and that if an arbitration agreement exists, it is substantively and

procedurally unconscionable as well as illusory. Cardwell also contended that the FAA is

inapplicable to her claim as it does not involve a “transaction involving commerce,” and argued

that application of the FAA would violate the Tenth Amendment to the United States

Constitution. 1 According to Cardwell, the purported agreement to arbitrate her workplace

injuries is not enforceable under Texas law.

Motion to Compel Hearing

At the inception of the motion to compel hearing, the trial court expressed to

Whataburger’s counsel that it was concerned about the arbitration agreement’s requirement that

arbitration occur in Dallas,2 Cardwell’s ability to afford pursuing her claim by arbitrating in

1
The Tenth Amendment provides: “The powers not delegated to the United States by the Constitution, nor prohibited
by it to the States, are reserved to the States respectively, or to the people.” U.S. CONST. AMEND. X.
2
Section 5.01 of the arbitration agreement contains a forum-selection clause which provides, “Any arbitrations taking
place under this policy shall be held in Dallas, Texas unless the parties mutually agree in writing to a different
location.”
2
Dallas, Cardwell’s Seventh Amendment right to a trial by jury, which the trial court considered to

be absolute, and the issue of unconscionability.3 In response, Whataburger then agreed on the

record to arbitrate Cardwell’s claims in El Paso.

During the hearing, the trial court admitted into evidence the affidavit of Frank Gallarzo,

General Manager for Whataburger, to which was appended Whataburger’s arbitration “policy” as

set forth in its employee handbook,4 an “Acknowledgement Sheet,” and a paycheck exemplar

which contains the arbitration agreement language.5

The arbitration policy provides:

All employees, by accepting employment or by continuing employment
after the implementation of this Policy, shall be required to submit any legally
recognized claim or dispute related to their employment, including workplace
injury or disease or to the termination of their employment, to arbitration, rather
than to litigation, according to this Policy and the rules established for its
enforcement. . . . . The Company, by implementing this Policy, and the
employees, by accepting or continuing employment following implementation and
notification of this Policy, waive the right to proceed in court and to a jury trial with
regard to any legally recognized claim or dispute covered by this Policy.
Employee understands and acknowledges that he/she is waiving his/her right to a
jury trial.

The arbitration policy further provides that upon the occurrence of facts giving rise to a

legally-recognized claim or dispute, Whataburger cannot unilaterally amend or modify the policy

3
The Seventh Amendment provides: “In Suits at common law, where the value in controversy shall exceed twenty
dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any
Court of the United States, than according to the rules of the common law.” U.S. CONST. AMEND. VII.
4
No party offered the employee handbook into evidence.
5
The paycheck exemplar states:
Whataburger will submit to arbitration any legally recognized claim or dispute related to
employment, including termination of employment, and workplace injury or disease claims, except
as specifically excluded in paragraph 3.02 of the Whataburger Arbitration Policy. By accepting or
continuing employment, Whataburger employees agree to submit the same claims to arbitration.
Each Whataburger employee has been provided a copy of the Arbitration Policy, and additional
copies may be obtained from the Home Office Human Resource Department at (210) 476-6000.
3
or avoid its obligation to proceed to arbitration, if requested to do so, in the absence of the mutual

consent of Whataburger and the employee. Under the arbitration agreement, Whataburger agrees

that it will not alter, modify or amend its arbitration policy without first providing 30 days’

advance written notice to all employees.

The “Acknowledgement Sheet” contained Cardwell’s signature and her initials by two

provisions: (1) one entitled, “Employee Handbook,” which includes a statement that Cardwell

understood that the information provided in the employee handbook was intended as a guide only

and that its provisions are not conditions of employment and may be modified, revoked, changed,

or deleted by Whataburger at any time without notice, and a statement that nothing in “this

manual” is intended to create, nor is to be construed to constitute, a contract between Whataburger

and any of its employees; and (2) one entitled, “Arbitration,” which stated, “I understand that

Whataburger Restaurants LLC will submit any legally recognized claim or dispute related to

employment, . . . including workplace injury or disease claims, except as specifically excluded in

paragraph 3.02 of the Arbitration Policy to arbitration and by accepting or continuing employment

I shall be required to submit any legally recognized claims or disputes to arbitration.” Cardwell

did not present any testimony or evidence in support of any asserted defenses urged as a basis to

deny enforcement of the arbitration agreement.

The trial court made several inquiries of Whataburger’s counsel regarding the cost of

arbitration, stated that it assumed that filing fees and jury fees had been paid, and asked

Whataburger how much it was choosing to pay the American Arbitration Association (AAA).

When Whataburger responded that it did not know the fees and was not choosing to pay anything,

the trial court stated, “I assume that’s a matter we can take judicial notice of; I would assume it’s in

4
the range of a thousand dollars, possibly more.” Whataburger indicated its belief that the fee was

near $1,000. The trial court then asked how much Whataburger paid an arbitrator per day, and

noted that although Whataburger could have a “free” trial, it was “choosing to pay thousands of

dollars to select a different forum.” In response to the court’s inquiry about any reason it was

choosing arbitration other than the expectation that the arbitration forum would be more friendly to

Whataburger and less friendly to Cardwell, Whataburger responded that AAA is not more

favorable in every forum, and noted that arbitration has the advantage of being less formal and

more timely in resolving disputes. The trial court asked if a less formal forum is advantageous to

a defendant. Observing that arbitration can be less costly in terms of attorneys’ fees and costs for

both parties, Whataburger noted that Cardwell could choose to work anywhere but had agreed to

arbitrate, explained that Cardwell’s agreement to arbitrate is a condition of her employment, and

also noted that the arbitration could be resolved in twelve months. The trial court then offered to

set a trial in six months and asked Whataburger what its basis was for spending “all this extra

money, other than [the trial court’s] suspicion that [Whataburger must] think one forum is going to

be way more favorable to [it] than the other forum?” Observing that the trial court’s assumption

that arbitration was a more expensive option was incorrect, Whataburger reminded the trial court

that what was at issue was the situation that existed at the time the parties agreed to arbitrate, not

what was presently available to the parties in the form of a trial setting. Whataburger’s counsel

explained that he was not authorized to agree to try Cardwell’s case and argued that the arbitration

agreement should be consistently enforced as written and agreed by the parties.

Cardwell, in turn, argued among other things, that the arbitration agreement was illusory,

substantively and procedurally unconscionable, and invalid, in part because she was not involved

5
in interstate commerce as required for FAA arbitration.

Illusory

Because Whataburger allegedly had the right to amend and modify the arbitration

agreement at will, Cardwell argued it was illusory. Cardwell referred to the acknowledgement

sheet that states the employee handbook is not a contract and that Whataburger can modify,

revoke, change, or delete anything in the handbook at any time, and to the arbitration agreement

which provides that it can be modified or amended by Whataburger unless the facts giving rise to

the injury have already occurred in support of her argument. Whataburger observed that the

employee handbook was not in evidence and conceded that if the arbitration agreement provided

that Whataburger could change the arbitration agreement after an employee was injured, then the

agreement would be illusory. However, Whataburger contended that because the arbitration

agreement expressly states that the parties may not modify or amend any of the terms of the

arbitration agreement after an injury has occurred, it is not illusory.

In response to the trial court’s inquiry regarding Cardwell’s powers to modify the terms of

the arbitration agreement, Whataburger responded that under the arbitration agreement, if

Whataburger chooses to modify the terms thereof, Cardwell is entitled to notice, and if she

continues to work for Whataburger, she has then agreed to the terms of the agreement as modified.

The trial court asked if an employee could inform Whataburger that Whataburger was going to

have to change the terms of the agreement if it wanted to continue to employ her. Whataburger

answered that it did not know if Cardwell had any powers to modify the terms of the agreement

and was not aware of any employee ever making that request or whether such had been granted or

not.

6
 Cardwell also argued the agreement was illusory because Whataburger had retained the

unilateral right to delete or terminate the arbitration provisions from the employee handbook under

the provision expressly set forth in the acknowledgement sheet, which provides that the provisions

of the employee handbook can be changed with or without notice. Cardwell argued that although

the Halliburton limiting language is in the arbitration “policy,” because there is no Halliburton

savings clause in the acknowledgement sheet where Whataburger expressly states that the

employee handbook may be amended at anytime without notice, the arbitration agreement is

rendered illusory. See In re Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2002).

Whataburger countered that deletion of the arbitration provision from the employee

handbook would violate the provisions of the arbitration policy which says that it cannot be

amended after the injury has occurred. Cardwell contended that the trial court was required to

look at all of the documents to harmonize the parties’ intent, and argued that under the

incorporation-by-reference doctrine, Whataburger evidenced an intent to make the provisions in

the acknowledgement sheet a part of the arbitration agreement.

In response to the court’s inquiry whether the employee handbook and the

acknowledgement were physically in one notebook or separate documents distributed at different

times, Whataburger explained that the acknowledgement is a separate document which “may be”

attached to the back of the handbook and torn out. It then specified that the employee signs the

acknowledgement, which is placed in the employee’s personnel file, and the employee handbook

is given to the employee to take home.

Substantively Unconscionable

Cardwell asserted that the agreement was never valid, was one-sided, and grossly favored

7
Whataburger because Cardwell could not afford to arbitrate in Dallas as required in the arbitration

agreement and because she would be forced to forfeit her cause of action. The trial court stated if

it did compel arbitration, it would compel that the arbitration proceedings take place in El Paso.

However, Whataburger observed that it had agreed to arbitrate in El Paso rather than Dallas as

required by the terms of the arbitration agreement. After Whataburger noted that under the

arbitration agreement, both parties had waived a trial by jury, the trial court inquired about the

rights lost by either party in proceeding to arbitration. Cardwell again identified the

twelve-month restriction of the arbitration agreement which would permit her claim to be

dismissed with prejudice, as well as “the FAA restriction,” as rights or remedies lost. When the

trial court asked if the parties’ rights to damages would be limited in any way, Cardwell replied

that she did not believe there was a limitation on damages if the parties proceeded to arbitration.

Without offering any evidence in support, counsel stated that Cardwell earns $7.40 per hour and

has an annual income of approximately $6,500. Cardwell argued that the arbitration agreement

was unconscionable at the time she entered into it, but also admitted that she signed the

acknowledgement form and conceded that she was not arguing any fraud or “inducement.”

Procedurally Unconscionable

Noting that Cardwell is not well educated, does not earn much money, does not have a

stable home life, and was looking for a job when she signed the arbitration agreement that is

purportedly in fine print within the employee handbook, Cardwell’s counsel argued that the

disparate bargaining power between Cardwell and Whataburger renders the agreement

procedurally unconscionable.

Invalid

8
 Cardwell argued the agreement was invalid because it violated the Federal Arbitration Act

due to “the restriction” on appellate remedies. Without conceding that the arbitration agreement

was unconscionable or improper, or illegal, Whataburger countered that when a provision in an

arbitration agreement is improper or unenforceable, the appropriate remedy is to strike the

provision and compel arbitration, and proceed under the FAA, which, it argued, would not affect

the purpose of the arbitration agreement. Cardwell responded that the trial court was required to

consider whether she would have the rights and remedies available under the Federal Arbitration

Act (FAA), and asserted that Whataburger had restricted her federal rights and remedies. She

argued that under the arbitration agreement, if the arbitration is not concluded or settled or heard

within twelve months, she would lose her case entirely, an event which would not occur in a trial.

Cardwell also argued that her rights were more restrictive under the arbitration agreement than

under the FAA provisions because under the FAA a party may request that a hearing “be moved,”

and noted that an arbitrator’s ruling may be appealed if the hearing is not “moved” for sufficient

cause. However, Cardwell complained that the arbitration agreement changed the FAA standard

to provide that “moving a hearing” beyond the agreement’s twelve-month rule was permitted only

for “good cause,” which Cardwell contends is more restrictive than the FAA’s “sufficient cause”

standard.

Interstate Commerce

Cardwell asserted that the FAA requires that an employee must be involved in interstate

commerce in order to apply, and she argued that she, a mere dishwasher, had nothing to do with

interstate commerce, thus the FAA was inapplicable. Citing Section 171.002 of the Texas Civil

Practice and Remedies Code, Cardwell further asserted that if the FAA is not applicable to her

9
claims, the Texas Arbitration Act (TAA) would apply but then contended that the arbitration

agreement would be void as a matter of law under the TAA, because its provisions require that

both parties and their attorneys must sign an arbitration agreement if it is to be binding in a

personal injury case. TEX. CIV. PRAC. & REM. CODE ANN. § 171.002 (West 2011). After the trial

court noted that Cardwell’s attorney had not signed the arbitration agreement, Whataburger again

urged that the FAA was applicable to the case, and the trial court observed that it thought interstate

commerce involved anything that touched upon interstate commerce.

At the conclusion of the hearing, the trial court provided Whataburger an additional two

weeks in which to respond to its concerns and Cardwell’s written response to its motions, and

instructed Whataburger’s counsel to ask his client if it would consider litigating the case in the trial

court if it could guarantee a fast trial setting. Counsel responded that there were several reasons

why arbitration was preferred, including reduced attorney’s fees, which counsel asserted would be

higher in a trial setting than in an arbitration. The trial court then agreed to conduct telephonic

conferences and discovery, and asked the parties if they would agree to a bench trial, noting that

they would save a few thousand dollars that would otherwise be paid to an arbitrator, and observed

that it could accommodate the parties’ schedules. Whataburger’s counsel agreed to take the offer

to his client, and the trial court recessed the hearing.

Post-Hearing Filings

After the hearing, Whataburger filed a reply brief in support of its motions in which it

argued that the U.S. Court of Appeals for the Fifth Circuit, in American Heritage Life Ins. Co. v.

Orr, 294 F.3d 702, 711 (5th Cir. 2002), had determined that the Seventh Amendment of the U.S.

Constitution was inapplicable to a valid arbitration provision that waives the right to resolve a

10
dispute through litigation in a judicial forum because the Seventh Amendment confers “only the

right to have a jury hear the case once it is determined that the litigation should proceed before a

court.” The Fifth Circuit there noted that, “If the claims are properly before an arbitral forum

pursuant to an arbitration agreement, the jury trial right vanishes.” Id. Whataburger again urged

that the arbitration agreement, and Cardwell’s waiver of her right to a trial by jury, were valid.

Asserting that the agreement was not unconscionable, Whataburger again posited that if a

provision of the agreement was found to be illegal or unconscionable, the proper remedy was to

sever the provision and compel arbitration pursuant to the agreement. Citing this Court’s opinion

in In re ReadyOne Industries, Inc., 294 S.W.3d 764, 769 (Tex.App.–El Paso 2009, orig.

proceeding), Whataburger also noted that Cardwell’s argument regarding the lack of an

interstate-commerce nexus was irrelevant because the parties had expressly agreed to arbitrate

claims under the provisions of the FAA. See id. (if the parties expressly choose for their

arbitration agreement to be governed by the FAA, the agreement should be enforced regardless of

the parties’ nexus to interstate commerce). Referencing In re Odyssey Healthcare, Inc., 310

S.W.3d 419, 423-24 (Tex. 2010), Whataburger argued that enforcement of the arbitration

agreement would not violate the Tenth Amendment, and observed that the Texas Supreme Court

had determined that an agreement to arbitrate was neither a waiver of a cause of action nor of the

pre-injury waiver rights provided under the Texas Labor Code but was merely an agreement that

those claims should be tried in a specific forum. Whataburger noted that Section 3 of the FAA

requires a trial court to stay proceedings upon determining that the issues raised in the complaint

are referable to arbitration, and urged that dismissal of the claims is proper when all claims

presented are subject to arbitration.

11
 In her letter response, Cardwell alleged that the arbitration agreement is unconscionable

because: (1) it limits “the duration of the arbitration proceedings to twelve months resulting in a

dismissal with prejudice;” (2) its “limitations on the remedies available to the Plaintiff on the

finality of the arbitrator’s award” are restrictive; and (3) it requires Cardwell to pay for the

presentation of all witnesses to the incident to appear at the arbitration in Dallas. Cardwell argued

that Whataburger could use the twelve-month limitation in the arbitration agreement to its benefit

by delaying both the case proceedings and discovery to achieve dismissal of her claim with

prejudice, in hindrance of her rights and remedies. Without citation to authority, she further

asserted that the arbitration agreement provided more restrictive limitations on her remedies

regarding the finality of the arbitrator’s award than the minimum rights accorded under the FAA.

Cardwell pointed out that Whataburger did not address her argument that the requirement that she

arbitrate in Dallas was unduly prejudicial or that the terms of the arbitration agreement and the

acknowledgement sheet render the agreement illusory. Finally, contending that the arbitration

agreement is “riddled with invalid provisions designed to unfairly benefit Whataburger[,]”

Cardwell argued that the severability of an illegal or unconscionable provision is not always a

proper remedy, and reurged the trial court to deny Whataburger’s motions.

Order with Findings of Fact and Conclusions of Law

The court’s order set out findings of fact and conclusions of law, and denied Whataburger’s

motion to compel arbitration.6 The trial court judicially noticed the fee schedules which “were

6
Within its order denying Whataburger’s motion to compel with findings of fact and conclusions of law, the trial
court expressly found, among other things, that:
(1) Whataburger was the sole creator of the arbitration policy, which was sixteen paragraphs long and located
on pages 22 and 23 of the 50-page employee handbook, and that Cardwell was not involved in proposing or
negotiating the terms of the agreement;
(2) provisions in the employee handbook and the acknowledgement sheet may permit Whataburger, but not
Cardwell, to modify, revoke, change, or delete the arbitration policy under some circumstances;
12
printed from the American Arbitration Association (AAA) website” and attached to its order, and

after conducting its own “brief study,” judicially noticed that a three-day arbitration would result

in arbitration fees exceeding $12,000.

The trial court entered ten “conclusions of law.” After expressing its dissatisfaction of

policies favoring arbitration and eliminating jury trials, and observing that it is bound by

precedent, the trial court expressly concluded that Whataburger’s arbitration agreement is

unconscionable and that the “facts and the record in this case overwhelmingly show

unconscionability.” In its remaining conclusions the trial court stated:

5. It is hard for this Court to think of anything more repulsive than
perpetuating a system that lets large corporations lavishly buy their way out of
judicial accountability and into a system more favorable to their side.

(3) Cardwell or her legal counsel had paid $305 in jury and filing fees and that no further forum fees would
accrue to either party if Cardwell’s case proceeded to trial;
(4) numerous, extremely large fees would accrue to Whataburger if the case proceeded to arbitration;
(5) the AAA standard schedule of arbitration filing fees range from $975.00 to $71,000.00, and the flexible
schedule of filing fees range from $1,075.00 to $75,500.00;
(6) although Cardwell had not pleaded a specific dollar amount in damages and punitive damages, if the claim
exceeds $300,000.00, the standard fee would be $6,100.00 and the flexible fee would be $6,650.00, and if her
claim exceeds $500,000.00, the respective fees would be $8,700.00 and $9,500.00;
(7) “[t]hese exorbitant filing fees are only part of the additional (and completely unnecessary) fees that
Whataburger is asking to pay[; t]he Website makes clear that Whataburger will have to pay the expenses [and
fees];”
(8) upon conducting its own brief study, and as judicially noticed by the trial court, arbitrator’s fees range from
$300.00 to $400.00 per hour or more and the AAA adds its additional $50 surcharge, and a “three day trial” would
exceed $12,000.00 in arbitrator fees;
(9) if it granted Whataburger’s motion to compel, Whataburger would pay the recited fees and costs, Cardwell
would lose her constitutional right to a trial by jury, and a single arbitrator would act as judge and jury;
(10) despite the trial court’s offer to have a non-jury trial without paying any forum fees, Whataburger wants to
pay approximately $20,000.00 for an arbitrator to consider the claims at a later hearing for “no conceivable reason
. . . other than Whataburger’s belief that it will fare much better, and Ms. Cardwell will fare much worse, before an
arbitrator;”
(11) assuming Whataburger acts in its own self interest, it would never insist on paying arbitral forum fees in
every employee claim absent a high level of certainty that it would save more than that by eliminating or limiting
employee recoveries;
(12) Whataburger, AAA, and arbitrators profit handsomely “from this arbitration policy [and] [t]he inescapable
conclusion is that those profits come from precluding dishwashers from receiving the compensation they could
otherwise obtain in the judicial system[;]” and
(13) the preceding conclusion is confirmed by Whataburger’s pretextual argument in support of arbitration, that
attorneys’ fees at trial are high, which is conclusory, a “totally unsupported allegation,”and not credible.

13
 6. Another unconscionable part of the policy is paragraph 5.01 which
states that all arbitration hearings shall take place in Dallas unless the parties
otherwise agree in writing. Obviously, Whataburger employees earning $7.40 per
hour in El Paso would never be able to go to Dallas and bring witnesses there.
[footnote omitted].
7. There was no written agreement to waive the Dallas provision, but
counsel for Whataburger conceded, at the hearing, that this particular arbitration
could occur in El Paso. [citation omitted].
8. If Whataburger were ever to use the Dallas requirement to preclude an
employee from pursuing a claim, that would be unconscionable. If Whataburger
would always waive it and allow employees to have a hearing in their home
community, then the Court can think of no reason to have it in the policy other than
to discourage employees, and plaintiff’s lawyers, from bringing claims in the first
place. That is also unconscionable.
9. Still another unconscionable part of the policy is the lie contained in
paragraph 101, the very first paragraph in the policy which states “Arbitration has
the advantages of being less formal and getting the dispute resolved more quickly
and at less expense”. [emphasis supplied by trial court]. In this case Whataburger
could proceed to trial more quickly with no costs, but, instead, is asking to pay
approximately $20,000.00 for a slower process so that it can buy an AAA fact
finder. If such conduct, which appears to be what the 7th Amendment was
designed to prevent, is allowed, then employers should, at the very least, be
required to honestly reveal that truth to employees. Affirmatively lying about it in
the policy is unconscionable.
10. Plaintiff raises other arguments as to why the arbitration policy is
unconscionable which the Court need not consider at this time. Paying
approximately $20,000.00 to purchase a more favorable fact finder and lying to
employees about why you are doing it is all the unconscionability this Court needs.

DISCUSSION

In its sole issue on appeal, Whataburger argues in four sub-issues that the trial court abused

its discretion when it denied its motion to compel arbitration and motion to dismiss Cardwell’s

lawsuit. Cardwell responds that this Court should affirm the trial court’s order denying the

motion to compel because the arbitration agreement is illusory and unenforceable under Texas

law.7 However, the trial court’s order does not find the arbitration agreement to be invalid nor

does it conclude that the arbitration agreement is illusory. Had the trial court made such

7
In her petition, Cardwell argued that the arbitration agreement is not valid because it is illusory.

14
determinations, it would have no need to decide, as it did, whether the arbitration agreement was

unconscionable. 8 Because the trial court’s order expressly denies Whataburger’s motion to

compel arbitration on the sole basis that the arbitration agreement is unconscionable, we

accordingly restrict our review and determine whether Cardwell established, as a defense, the

unconscionability of the arbitration agreement by which the trial court could properly deny

Whataburger’s motions. Because Cardwell did not meet her burden, we conclude the trial court

abused its discretion when it denied Whataburger’s motions.

Standard of Review

Unconscionability is a question of law which we review de novo under an abuse of

discretion standard. See In re Poly–America, L.P., 262 S.W.3d 337, 348–49 (Tex. 2008)(whether

contract is unconscionable when formed is question of law which is reviewed de novo); Delfingen

US-Texas, L.P. v. Valenzuela, 407 S.W.3d 791, 800 (Tex.App.—El Paso 2013, no pet.)(citations

omitted). The determination of the facts relevant to the question of unconscionability is a

question for the trial court. Delfingen US-Texas, L.P., 407 S.W.3d at 798. We do not engage in

our own factual review, but decide whether the record supports the trial court’s resolution of

factual matters. Id. at 799-800. If it does, we are not at liberty to disturb the trial court’s

determinations of fact. Id. at 800. We instead determine whether the trial court properly applied

the law to the facts in reaching its legal conclusion. Id. Because a trial court has no discretion to

determine what the law is or to apply law incorrectly, its clear failure to properly analyze or apply

the law of unconscionability constitutes an abuse of discretion. See In re Poly–America, L.P., 262

S.W.3d at 348; Lucchese Boot Co. v. Licon, 388 S.W.3d 365, 372 (Tex.App.–El Paso 2012, no

8
We observe that Cardwell filed no cross-appeal challenging the trial court’s findings and conclusions or complaining
of the omission of findings and conclusions.
15
pet.)(citation omitted). It is implicit that a fact finder’s affirmative fact finding must be supported

by sufficient evidence. See Granado v. Meza, 398 S.W.3d 193, 193 (Tex. 2013)(trial court’s

determination of child support arrearages must be set aside if no evidence supports it); Chavez v.

Chavez, 148 S.W.3d 449, 456 (Tex.App.–El Paso 2004, no pet.)(appellant may challenge the trial

court’s findings of fact for legal and factual sufficiency of the evidence); Keenan v. Aguilar, 391

S.W.3d 620, 624 (Tex.App.–El Paso 2012, no pet.).

In evaluating an unconscionability defense, the Texas Supreme Court has recently

observed that “[t]he Uniform Commercial Code provides that a court should afford the parties a

reasonable opportunity to present evidence as to a contract’s commercial setting, purpose and

effect to aid the court[.]” TEX. BUS. & COM. CODE ANN. § 2.302(b) (West 2009); Venture Cotton

Co-op v. Freeman, No. 13-0122, 2014 WL 2619535, at *4 --S.W.3d --, -- (Tex. 2014). Under the

UCC, the court is to make a highly fact-specific inquiry into the circumstances of the bargain, such

as the commercial atmosphere in which the agreement was made, the alternatives available to the

parties at the time and their ability to bargain, any illegality or public policy concerns, and the

agreement’s oppressive or shocking nature when determining unconscionability. Venture Cotton

Co-op, 2014 WL 2619535, at *4.

“Courts should also use care not to intrude upon arbitral jurisdiction under the guise of an

unconscionability defense.” Id. at *7-8 (addressing trial court’s determination of

unconscionability based on the rights of one party to recover attorney’s fees in violation of the

other party’s statutory right to attorney’s fees, and determining that a contract which fails to

provide reciprocal rights to attorney’s fees is not unconscionable per se). The crucial inquiry in

determining unconscionability is “whether the arbitral forum in a particular case is an adequate

16
and accessible substitute to litigation” where a litigant’s rights can be effectively litigated. Id. at

*7, citing In re Olshan Found. Repair Co., 328 S.W.3d 883, 894 (Tex. 2010). However, that

inquiry is satisfied not by speculation but by specific proof in the particular case of the arbitral

forum’s inadequacy. In re Olshan Found. Repair Co., 328 S.W.3d at 896. Moreover, arbitration

provisions “should not be held unconscionable based on speculation about their potential effect.”

Venture Cotton Co-op, 2014 WL 2619535, at *8, citing PacifiCare Health Sys., Inc. v. Book, 538

U.S. 401, 407 n.2, 123 S.Ct. 1531, 155 L.Ed.2d 578 (2003). A strong federal presumption favors

arbitration when authority over the matter is unclear. Venture Cotton Co-op, 2014 WL 2619535,

at *8, citing In re Poly-America, L.P., 262 S.W.3d at 348.

Applicable Law

A party seeking to compel arbitration must (1) establish the existence of a valid arbitration

agreement; and (2) show that the claims asserted are within the scope of the agreement. See In re

AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex. 2005); Inland Sea, Inc. v. Castro, 420

S.W.3d 55, 58 (Tex.App.–El Paso 2012, pet. denied). While the FAA preempts application of

state law that would render an existing arbitration agreement unenforceable, it does not preempt

application of state law to determine the existence of an arbitration agreement. See In re

Halliburton Co., 80 S.W.3d at 568–73 (applying FAA to compel arbitration after determining

arbitration agreement existed under substantive Texas law).

Once the party seeking to compel arbitration proves that a valid arbitration agreement

exists, a presumption attaches favoring arbitration and the burden shifts to the party resisting

arbitration to establish a defense to enforcement. See In re AdvancePCS Health L.P., 172 S.W.3d

at 607; Inland Sea, Inc., 420 S.W.3d at 58; IHS Acquisition No. 171, Inc. v. Beatty–Ortiz, 387

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S.W.3d 799, 810 (Tex.App.–El Paso 2012, no pet.)(because the law favors arbitration, burden of

proving defense to arbitration is that of party opposing it). Defenses to the enforcement of an

arbitration agreement refer to unconscionability, duress, fraudulent inducement, and revocation.

In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001); IHS Acquisition No. 171, Inc., 387

S.W.3d at 810.

Agreements to arbitrate disputes between employers and employees are generally

enforceable under Texas law. In re Poly–America, L.P., 262 S.W.3d 337, 348 (Tex. 2008)(orig.

proceeding). An arbitration agreement is invalid if it is unconscionable. See In re Palm Harbor

Homes, Inc., 195 S.W.3d 672, 677–79 (Tex. 2006); In re Halliburton Co., 80 S.W.3d 566, 572

(Tex. 2002). Unconscionable contracts, whether relating to arbitration or not, are unenforceable

under Texas law. In re Poly–America, L.P., 262 S.W.3d at 348. There is nothing per se

unconscionable about an agreement to arbitrate employment disputes and Texas law has

historically favored agreements to resolve such disputes. Id.

Whether an arbitration agreement is unconscionable is a determination to be made in light

of a variety of factors. Delfingen US-Texas, L.P., 407 S.W.3d at 798 (citations omitted). In

determining whether a contract is unconscionable, we must examine (1) the “entire atmosphere” in

which the agreement was made; (2) the alternatives, if any, available to the parties at the time the

contract was made; (3) the “non-bargaining ability” of one party; (4) whether the contract was

illegal or against public policy; and (5) whether the contract is oppressive or unreasonable. Id.

We assess the totality of the circumstances as of the time the contract was formed. Id.; El Paso

Natural Gas Company v. Minco Oil & Gas Company, 964 S.W.2d 54, 60–61 (Tex.App.–Amarillo

1997), rev’d on other grounds, 8 S.W.3d 309 (1999).

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 Unconscionability may be either substantive or procedural in nature. In re Halliburton

Co., 80 S.W.3d at 571. Substantive unconscionability concerns the fairness of the arbitration

provision itself. Id. A contract is substantively unconscionable if, “given the parties’ general

commercial background and the commercial needs of the particular trade or case, the clause

involved is so one-sided that it is unconscionable under the circumstances existing when the

parties made the contract.” In re Poly–America, L.P., 262 S.W.3d at 348 (quoting In re

FirstMerit Bank, 52 S.W.3d 749, 757 (Tex. 2001)(orig. proceeding)); see also In re Halliburton

Co., 80 S.W.3d at 571. Procedural unconscionability refers to the circumstances surrounding the

adoption of the arbitration provision and relates to the making or inducement of the contract, and

our focus is on the facts surrounding the bargaining process. In re Halliburton Co., 80 S.W.3d at

571. The grounds for substantive abuse must be sufficiently shocking or gross to compel the

court to intercede, and the same is true for procedural abuse—the circumstances surrounding the

negotiations must be shocking. Delfingen US-Texas, L.P., 407 S.W.3d at 798 (citations omitted);

El Paso Natural Gas Co., 964 S.W.2d at 62.

Cardwell’s Defenses and the Trial Court’s Finding of Unconscionability

Procedural Unconscionability

Contending that Whataburger “created an atmosphere that attempted to minimize the

possibility of any new hire questioning the arbitration agreement in any way,” Cardwell asserted in

her petition that the arbitration agreement is procedurally unconscionable because Whataburger

took advantage of her disparate bargaining ability by disguising “the term of an arbitration

agreement in fine . . . print buried in an employee manual.” Cardwell also complained that “the

disparate bargaining power of the parties was grossly inadequate as [she] was in no position to

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refuse . . . [to] be hired.” However, we note that the trial court did not conclude the arbitration

agreement was unconscionable on this basis.

Substantive Unconscionability

Section 7.01

Cardwell specifically complained in her petition about Section 7.01 of the arbitration

agreement, which provides that after arbitration has been requested, the arbitration must be

completed within twelve months or it will be dismissed with prejudice for want of prosecution

unless good cause is shown in support of her claim of substantive unconscionability. According

to Cardwell, Section 7.01 “invalidates the arbitration policy” because it creates a limitation on her

ability to conduct discovery and prosecute her case, is grossly one-sided as to render the entire

agreement unconscionable, and its requirement that the subjective standard of good cause be

applied to avoid dismissal with prejudice if “the litigation” exceeds one year, limits her substantive

rights and remedies and imposes a higher standard than that provided under the FAA. See 9

U.S.C.A. § 10(a)(3). The trial court did not conclude the arbitration agreement is unconscionable

on this basis.

Section 6.01

Cardwell next complained of Section 6.01 of the arbitration agreement, which provides

that “[e]xcept where it may be shown that the arbitrator’s award was procured by fraud or

corruption, or where the arbitrator has demonstrated evident partiality or misconduct sufficient to

substantially prejudice the rights of one or more of the parties, or where the arbitrator’s award

shows manifest disregard for the governing law or for this [agreement], the award rendered by the

arbitrator shall be final, binding and unappealable.” She asserted that Section 6.01 violates the

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law and is invalid because it restricts her rights and remedies as provided by Section 10(a) of the

FAA.9 See 9 U.S.C.A. §10(a). Again, the trial court did not conclude the arbitration agreement

was unconscionable on this basis.

Section 5.01

Cardwell also complained that Section 5.01, the arbitration agreement’s forum-selection

clause, which requires that arbitration under the agreement shall take place in Dallas unless the

parties mutually agree in writing to another location and requires that witness expenses shall be

borne by the party calling said witness, “renders the entire agreement invalid.” Noting, without

supporting evidence, her limited income of less than $7,000 per year, her residence in a homeless

shelter, and the expense of flying her witnesses to the events giving rise to Cardwell’s claims to

Dallas from El Paso, Cardwell alleged that the excessive costs arising from the arbitration

agreement’s forum-selection clause set out in Section 5.01 would deter her from seeking her full

rights and remedies as she could not afford them.10 For these reasons, Cardwell asserted that the

arbitration agreement is invalid because it is substantively unconscionable and grossly one-sided

9
Section 10 of the FAA, which addresses instances in which an arbitration award may be vacated, provides:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make
an order vacating the award upon the application of any party to the arbitration--
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior
by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted was not made.
(b) If an award is vacated and the time within which the agreement required the award to be made has not expired, the
court may, in its discretion, direct a rehearing by the arbitrators.
(c) The United States district court for the district wherein an award was made that was issued pursuant to section 580
of title 5 may make an order vacating the award upon the application of a person, other than a party to the arbitration,
who is adversely affected or aggrieved by the award, if the use of arbitration or the award is clearly inconsistent with
the factors set forth in section 572 of title 5. 9 U.S.C.A. § 10.
10
Cardwell’s affidavit, which was attached to her written response and specified her income and anticipated costs of
arbitration in Dallas, was never offered into evidence nor admitted.
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in favor of Whataburger. The trial court did make certain conclusions of law of unconscionability

relating to the forum-selection clause.

Whataburger’s Challenges

Whataburger has challenged, among others, the trial court’s conclusions of law finding

unconscionability based on the forum-selection clause. The trial court’s sixth conclusion of law

determined that the forum-selection clause of Section 5.01 is unconscionable, but in the seventh

conclusion of law acknowledged that Whataburger had agreed during the motion to compel

hearing to conduct arbitration in El Paso. Whataburger contends the trial court abused its

discretion in entering its sixth conclusion of law because an agreement on the record to arbitrate in

El Paso renders the unconscionability, allegedly arising from the forum-selection clause, moot.

We agree.

Rule 11 permits an agreement between attorneys or parties to be enforced if it is either in

writing, signed and filed with the papers as part of the record, or made in open court and entered of

record. TEX. R. CIV. P. 11. Because Whataburger’s on-the-record agreement to arbitrate in El

Paso was made in open court, we hold the forum-selection clause as a basis for concluding the

arbitration agreement was unconscionable was rendered moot and no longer existed at the time the

trial court entered its conclusion.

Moreover, we observe the trial court’s eighth “conclusion of law,” which has as its basis

future actions by Whataburger, is in the nature of an advisory opinion. See Texas Ass’n of Bus. v.

Texas Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993)(“The distinctive feature of an advisory

opinion is that it decides an abstract question of law without binding the parties.”). The Texas

Supreme Court has construed the separation of powers article of the Texas Constitution “to

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prohibit courts from issuing advisory opinions because such is the function of the executive rather

than the judicial department.” See TEX.CONST. art. II, § 1; Texas Ass’n of Bus., 852 S.W.2d at

444.

We next consider Whataburger’s challenges to the trial court’s fifth and ninth conclusions

of law. Appellant correctly notes that Cardwell did not urge either of these assertions to the trial

court for determining that the arbitration agreement is unconscionable and never offered or

submitted any evidence, argument, or briefing in support.

The trial court’s fifth and part of its ninth conclusions of law were based on facts not

presented as evidence by any party, but rather as the court states on the trial court’s own

post-hearing independent “study.” Even if the trial court’s judicial notice of the AAA fees and

costs was proper, there was no evidence before the trial court to show the fees or costs that would

be specifically applicable to an arbitration proceeding between these parties. Cf. In re FirstMerit

Bank, N.A., 52 S.W.3d at 757 (party opposing arbitration agreement as unconscionable on ground

that arbitration will subject party to substantial costs and fees must prove likelihood of incurring

such costs by presenting some specific information of future costs; absent evidence of specific

information of what arbitration costs would be or that party would actually be charged excessive

arbitration fees, Texas Supreme Court determined requirement of three-arbitrator panel in

arbitration agreement was not evidence of unconscionability and evidence was legally insufficient

to show party would be denied access to arbitration based on excessive costs), citing Green Tree

Fin. Corp-Alabama v. Randolph, 531 U.S. 79, 92, 121 S.Ct. 513, 522, 148 L.Ed.2d 373 (2000).

Whataburger also challenges the trial court’s ninth conclusion of law determining

unconscionability on the ground that Whataburger “lies” to its employees. Cardwell never

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asserted or presented any evidence establishing that the statement regarding the benefits of

arbitration as set out in Section 1.01 of the arbitration agreement is untrue, as the trial court

concluded after conducting its own “brief study.” Indeed, we observe that many of the “facts”

found by the trial court were never presented through evidence or testimony, and some were never

even addressed during the hearing.

Whataburger notes that Cardwell argued only some of her defenses in opposition to its

motion to compel arbitration to the trial court during the hearing, and Cardwell acknowledged

during the hearing that some of her arguments and assertions were brought only for purposes of

appeal. Out of an abundance of caution, Whataburger has addressed these other matters in its

brief. However, as the trial court did not base its determination of unconscionability on those

grounds, we need not consider them.

The trial court’s determination of unconscionability is founded upon bases that Cardwell

did not raise. The record does not support the trial court’s resolution of factual matters regarding

the costs of arbitration for these parties, and the trial court’s resolution of factual matters is

unsupported, as it must be, by evidence in the record. Delfingen US-Texas, L.P., 407 S.W.3d at

800. Because the trial court’s clear failure to properly analyze and apply the law of

unconscionability constitutes an abuse of discretion, Whataburger’s sole issue on appeal is

sustained. See In re Poly–America, L.P., 262 S.W.3d at 348; Delfingen US-Texas, L.P., 407

S.W.3d at 800.

CONCLUSION

The trial court’s order denying Whataburger’s Motion to Compel Arbitration and Motion

to Dismiss is reversed and the case is remanded to the trial court with instructions to grant the

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motion and enter an order compelling arbitration and staying the proceedings in Cardwell’s case.

ANN CRAWFORD McCLURE, Chief Justice
October 24, 2014

Before McClure, C.J., Rivera, and Rodriguez, JJ.
Rivera, J., not participating

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