IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 02-50070
Summary Calender
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ALAMO MOVING AND STORAGE ONE CORPORATION; A-LSBDBC CORPORATION,
doing business as Advanced Moving and Storage; SOUTHERN RELOCATION
& STORAGE ONE CORPORATION,
Plaintiffs-Appellants,
versus
MAYFLOWER TRANSIT L.L.C.,
Defendant-Appellee.
___________________________________________________________________
Appeals from the United States District Court
for the Western District of Texas, San Antonio
(USDC No. SA-01-CV-411)
July 31, 2002
Before JOLLY, WIENER, and STEWART, Circuit Judges.
PER CURIAM:*
In this case, we hold that the district court did not err in
compelling arbitration between Alamo Moving and Storage Company, et
al. (“Alamo”) and Mayflower Transit L.L.C. (“Mayflower”). We also
hold that the district court committed reversible error in
dismissing Alamo’s indemnification claim with prejudice. The
*
Pursuant to 5th Cir. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5th Cir. R. 47.5.4.
district court’s judgment is therefore affirmed in part and
reversed in part. We remand for a dismissal without prejudice of
Alamo’s indemnification claim.
I
Mayflower employed Alamo as its agent in the moving and
storage business in San Antonio, Texas. On January 19, 1999,
Joseph and Tia Duerrmeyer filed suit against Alamo alleging breach
of contract, conversion, fraud, and negligence in connection with
the Duerrmeyers’ move from Switzerland to San Antonio. On March 7,
2001, the jury returned a verdict against Alamo. The verdict
awarded the Duerrmeyers $318,233 in damages and $88,059 in pre-
judgment interest. While this lawsuit was pending, Mayflower
terminated its agency arrangement with Alamo because of (1) Alamo’s
claim history, (2) its lack of qualified drivers, (3) its then
current debit balance with Mayflower for $55,000, and (4) the
repossession of some of Alamo’s equipment.
Hoping to shield itself from liability, Mayflower reached a
tentative settlement with the Duerrmeyers. Under the terms of the
settlement, the Duerrmeyers agreed to release their judgment
against Alamo in return for a payment by Mayflower alone, with no
consideration from Alamo. Before the execution of this tentative
settlement, however, Alamo filed for bankruptcy. Mayflower then
filed a motion with the bankruptcy court seeking approval of the
settlement. For reasons unapparent on appeal, the bankruptcy court
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denied Mayflower’s motion. Shortly thereafter, Mayflower purchased
the Duerrmeyers’ judgment against Alamo. As of today, only
Mayflower has a judgment pending against Alamo. It is noteworthy
that Mayflower has not made any attempt to enforce this judgment.
On April 17, 2001, Alamo filed suit against Mayflower in Texas
state court for (1) wrongful termination of its agency agreement
and (2) breach of contract based on Mayflower’s refusal to
indemnify Alamo in the Duerrmeyers’ lawsuit. Mayflower removed the
case to federal court. On Mayflower’s motion, the district court
compelled arbitration.
Mayflower won in arbitration. The arbitration panel found
that Alamo’s financial situation and performance history warranted
the termination of the agency relationship. The district court
confirmed the arbitration award and entered a take-nothing
judgment. Alamo filed a motion for a new trial and/or
reconsideration, arguing that the arbitrators had not properly
considered its indemnification claim against Mayflower. The
district court denied Alamo’s motion and sua sponte dismissed the
indemnification claim. Alamo now appeals.
II
We first consider whether the arbitration clause in the agency
agreement is enforceable.
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We review the grant or denial of a motion to compel
arbitration de novo. Webb v. Investacorp, Inc., 89 F.3d 252 (5th
Cir. 1996).
Through the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et
seq., Congress set forth a strong federal policy in favor of
arbitration. See Moses H. Cone Memorial Hosp. v. Mercury Const.
Corp., 460 U.S. 1, 24 (1983). The FAA provides that arbitration
agreements "shall be valid, irrevocable, and enforceable, save upon
such grounds that exist at law or in equity for the revocation of
any contract." 9 U.S.C. § 2.
A court deciding whether to compel arbitration engages in a
two-step inquiry. First, the court asks whether the parties
agreed to arbitrate the particular dispute. Second, the court
decides “whether legal constraints external to the parties’
agreement” preclude the arbitration of the dispute. Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627
(1985). At issue here is the district court’s resolution of the
first step in this two-step inquiry.
In determining whether there exists an agreement to arbitrate,
courts “generally . . . should apply ordinary state-law principles
that govern the formation of contracts." First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Under the FAA,
“applicable [state-law] contract defenses, such as fraud, duress,
or unconscionability, may be applied to invalidate arbitration
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agreements without contravening [the FAA].” Doctor’s Assocs., Inc.
v. Casarotto, 517 U.S. 681, 685 (1996).
Here, the contract clearly indicates that the parties agreed
that arbitration would govern any dispute arising out of the
termination of the Mayflower-Alamo agency agreement. Alamo argues
that this arbitration clause is nonetheless unenforceable because
(1) it allows for limited discovery and (2) it entitles Mayflower
to “virtual summary judgment.”
We construe Alamo’s first argument in terms of
unconscionability; that is, because the arbitration clause allows
for limited discovery, it is unconscionable and hence unenforceable
under Texas law.
An unconscionable contract “is unfair because of its overall
one-sidedness or the gross one-sidedness of one of its terms."
Pony Exp. Courier Corp. v. Morris, 921 S.W.2d 817, 821
(Tex.App.--San Antonio 1996, no writ). Although contracts in Texas
can be unconscionable for either substantive or procedural reasons,
Alamo makes only a substantive unconscionability argument here.
Substantive unconscionability refers to “the entire atmosphere in
which the agreement was made; the alternatives, if any, available
to the parties at the time the contract was made; the
‘nonbargaining ability’ of one party; whether the contract was
illegal or against public policy; and whether the contract was
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oppressive or unreasonable." In re Turner Brothers Trucking Co.,
Inc., 8 S.W.3d 370 (Tex.App.--Texarkana 1999, no pet.).
In this case, the lack of discovery during the arbitration was
Alamo’s own choice. Alamo did not request discovery before or
during arbitration. The arbitration clause does not prohibit
discovery. Instead, the clause simply does not provide for
discovery, leaving the issue in the hands of the arbitration panel.
Nothing about the clause is oppressive or unreasonable: The
clause, for example, does not limit Alamo’s discovery while
granting Mayflower unlimited discovery. Under the clause, each
party selects one of the two arbitrators who will rule on discovery
issues. In short, the clause does not reflect a lack of bargaining
power on the part of Alamo or a totally one-sided bargain. We thus
hold that the failure to provide expressly for discovery does not
render the arbitration clause unconscionable under Texas law.
As we have said, Alamo also argues that the arbitration clause
is unenforceable because it entitles Mayflower to “virtual summary
judgment.” In making this argument, Alamo confuses two different
clauses in the agency agreement –- the arbitration clause and the
termination clause. The termination clause states that “[i]t is
agreed and understood that any of the following reasons, without
further showing, and without limiting the Company thereto, shall be
a good and sufficient reason for cancellation by [Mayflower].”
(emphasis added). The termination clause then lists several
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possible reasons for termination, including “[t]he failure or
apparent failure of the Agent to meet his financial obligations to
[Mayflower].” It is undisputed that Alamo failed to meet its
financial obligations to Mayflower. Before termination of the
agency agreement, Alamo had a growing debit balance with Mayflower
and a high claim ratio. Despite repeated warnings from Mayflower,
Alamo made no attempt to address these financial concerns. As a
consequence, the termination clause allowed Mayflower to terminate
the agency agreement “without any further showing.” The
termination clause -- not the arbitration clause -- granted
Mayflower “virtual summary judgment” in this case. Alamo does not
argue the termination clause is unenforceable under Texas law.
Alamo has thus waived any argument to this effect. See Applewhite
v. Reichhold Chemicals, Inc., 67 F.3d 571, 573 (5th Cir. 1995).
Furthermore, Alamo does not indicate why, even if the language of
the termination clause is unmerciful, the termination clause of the
contract renders the arbitration clause unenforceable.
Accordingly, the district court properly rejected this argument.
For the aforementioned reasons, we conclude that the
arbitration clause was enforceable under Texas law. The district
court therefore did not err in compelling arbitration or confirming
the arbitration award.
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III
As we previously stated, the district court, sua sponte,
dismissed Alamo’s indemnification claim. We assume this dismissal
was with prejudice. See Fernandez-Montes v. Allied Pilots Ass’n,
987 F.2d 278, 284 n.8 (5th Cir. 1993) (“[I]t is well established
that a dismissal is presumed to be with prejudice unless the order
explicitly states otherwise.”). Because Mayflower holds an
enforceable judgment against Alamo, this dismissal was unwarranted
under state law. See Tubb v. Bartlett, 862 S.W.2d 740, 750
(Tex.App.-El Paso 1993, rehearing denied, writ denied) (“In the
case of a promise to indemnify against liability, a cause of action
accrues to the indemnitee only when the liability has become fixed
and certain, as by rendition of a judgment.”). Accordingly, we
reverse the district court on this issue and remand for the entry
of a dismissal without prejudice.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
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