in Re: Nabors Wells Services, Ltd. D/B/A Nabors Industries

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

NUMBER 13-08-00397-CV

NABORS WELLS SERVICES, LTD.
D/B/A NABORS INDUSTRIES, Appellant,

v.

LUCIO HERRERA, Appellee.

On appeal from the County Court at Law No. 1
of Hidalgo County, Texas.

NUMBER 13-08-00451-CV

IN RE NABORS WELLS SERVICES, LTD.
D/B/A NABORS INDUSTRIES

On Petition for Writ of Mandamus
and Motion for Temporary Relief and Temporary Order.

MEMORANDUM OPINION
 Before Chief Justice Valdez and Justices Yañez and Benavides
Memorandum Opinion by Justice Benavides

Through a petition for writ of mandamus filed in Cause No. 13-08-00451-CV and an

interlocutory appeal filed in Cause No. 13-08-00397-CV, relator, Nabors Wells Services,

Ltd. d/b/a Nabors Industries (“Nabors”), seeks to compel the trial court to vacate its order

denying Nabors’s motion to compel arbitration. We dismiss the appeal and conditionally

grant the petition for writ of mandamus.

I. Background

Lucio Herrera, the real party in interest, is a former employee of Nabors. When

Nabors hired Herrera, it furnished him with a copy of the “Nabors Dispute Resolution

Program and Rules” (the “Program”). The Program established a procedure for resolving

disputes arising from the employer-employee relationship through the use of arbitration.

Herrera executed an “Employee Acknowledgment Concerning Nabors Dispute Resolution

Program,” reflecting his receipt of and agreement to comply with the Program.

Herrera subsequently left his job at Nabors and sued Nabors for retaliation,

discrimination, intentional infliction of emotional distress, sexual harassment, and invasion

of privacy. Nabors answered the suit, then filed a motion to compel arbitration supported

by copies of the Program, Herrera’s execution of the Acknowledgment, and the affidavit

of Frank M. Labrenz, the vice-president of personnel resources at Nabors.

In his written response to the motion to compel, Herrera argued the arbitration

agreement was unenforceable because: (1) the agreement was illusory; (2) the terms of

the agreement were indefinite; (3) the agreement was substantively unconscionable

because it gives Nabors the sole right to identify the arbitrators; and (4) the agreement

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deprives Herrera of “an equivalent and accessible forum” in which to vindicate his

employment rights. Herrera’s response did not otherwise deny the allegations in Nabors’s

motion to compel arbitration.

The trial court held a non-evidentiary hearing. Nabors argued the parties had a valid

arbitration agreement and that Herrera’s claims and causes of action against it fell within

the scope of the agreement. Herrera did not deny the existence of a written arbitration

policy or dispute that his claims fell within the scope of the Program. Instead, Herrera

argued that the arbitration agreement was illusory and unenforceable because Nabors

could terminate or modify the Program at any time and in its sole discretion.

The trial court denied arbitration. The trial court's order did not specify whether the

arbitration agreement in this case was governed by the Federal Arbitration Act ("FAA") or

the Texas Arbitration Act ("TAA"). See 9 U.S.C. §§ 1-16 (1999) (FAA); TEX . CIV. PRAC . &

REM . CODE ANN . §§ 171.001-.098 (Vernon 1997 and Supp. 2008) (TAA). Therefore, Nabors

seeks review of the order denying arbitration both by mandamus and interlocutory appeal.

See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (providing that

litigants alleging entitlement to arbitration under the FAA and TAA must pursue parallel

proceedings).

II. FAA

The FAA applies to transactions that involve commerce. See 9 U.S.C. § 2 (2005).

“Commerce” has been broadly defined and encompasses contracts relating to interstate

commerce. See In re Gardner Zemke Co., 978 S.W.2d 624, 626 (Tex. App.–El Paso

1998, orig. proceeding). The FAA does not require a substantial effect on interstate

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commerce; rather, it requires commerce to be involved or affected. See L & L Kempwood

Assocs., L.P. v. Omega Builders, Inc. (In re L & L Kempwood Assocs., L.P.), 9 S.W.3d

125, 127 (Tex. 1999) (orig. proceeding); In re Merrill Lynch Trust Co. FSB, 123 S.W.3d

549, 553 (Tex. App.–San Antonio 2003, orig. proceeding).

According to affidavit testimony proffered by Labrenz, Nabors is a Texas limited

partnership with operations in several states, including Alabama, Arkansas, California,

Colorado, Oklahoma, Texas, and Wyoming. Absent evidence to the contrary, “the

relationship between an employer who is regularly engaged in activities related to interstate

commerce and its employees is affected by interstate commerce as a matter of law and

implicates commerce clause issues.” In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 880

(Tex. App.–El Paso 2005, orig. proceeding). Moreover, the Program itself expressly

provides that it is governed by the FAA. Thus, we hold that the FAA governs our analysis

of the arbitration agreement at issue herein.

When a trial court erroneously denies a motion to arbitrate under the FAA,

mandamus is the appropriate remedy. In re Halliburton Co., 80 S.W.3d 566, 573 (Tex.

2002) (orig. proceeding); see 9 U.S.C.A. § 4 (2005) (section 4 of the FAA provides, in part,

that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate

under a written agreement for arbitration may petition . . . for an order directing that such

arbitration proceed in the manner provided for in such agreement”); Nabors Drilling USA,

LP v. Carpenter, 198 S.W.3d 240, 246 (Tex. App.–San Antonio 2006, orig. proceeding).1

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The San Antonio Court of Appeals has considered whether to com pel arbitration of a form er
em ployee’s claim s against his em ployer under the sam e arbitration program as was utilized by Nabors in the
instant case. See Nabors Drilling USA, LP v. Carpenter, 198 S.W .3d 240, 246 (Tex. App.–San Antonio 2006,
orig. proceeding). The court therein concluded that the program constituted a valid arbitration agreem ent that
covered the form er em ployee's claim s, and in the an absence of any defense to enforcing the agreem ent, the

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Accordingly, we dismiss Nabors’s interlocutory appeal and consider the merits of its petition

for writ of mandamus.

III. Standard of Review

To be entitled to mandamus relief, a petitioner must show that the trial court clearly

abused its discretion and that the relator has no adequate remedy by appeal. In re

Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004) (citing Walker v. Packer,

827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding)); see In re McAllen Med. Ctr., Inc., 51

Tex. Sup. Ct. J. 1302, 2008 Tex. LEXIS 759, at *6 (Tex. Aug. 29, 2008) (orig. proceeding).

We may not substitute our judgment for that of the trial court with respect to the resolution

of factual issues or matters within the trial court’s discretion. Walker v. Packer, 827 S.W.2d

833, 839-40 (Tex. 1992) (orig. proceeding). The relator must show that the trial court could

reasonably have reached only one decision. Id. The reviewing court cannot disturb the

trial court’s decision unless it is shown to be arbitrary and unreasonable. Id. With respect

to the trial court’s decision on legal issues, our review is much less deferential. Id. at 840.

A trial court has no discretion in determining what the law is or applying the law to the facts.

Id. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute

an abuse of discretion. Id.

IV. Validity and Scope

A party seeking to compel arbitration by a writ of mandamus must (1) establish the

existence of a valid agreement to arbitrate under the FAA, and (2) show that the claims in

trial court erred in not com pelling arbitration. See id. Relator contends that this case should control our
analysis of this m atter; however, given the differing legal argum ents and evidentiary postures of the two cases,
we consider this opinion as instructive, but not controlling, of our analysis herein.

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dispute are within the scope of the agreement. In re Kellogg Brown & Root, Inc., 166

S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). “Whether a valid arbitration agreement

exists is a legal question subject to de novo review.” In re D. Wilson Constr. Co., 196

S.W.3d 774, 781 (Tex. 2006). In determining the validity of agreements to arbitrate which

are subject to the FAA, we generally apply state-law principles governing 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 (1995)). If the trial court finds there

is a valid agreement to arbitrate, the burden shifts to the party opposing arbitration to prove

his defenses. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).

Once a valid agreement to arbitrate has been established, the court must then

determine whether the arbitration agreement covers the nonmovants’ claims. In re

FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). To determine

whether an existing arbitration agreement covers a party’s claims, a court must “focus on

the complaint’s factual allegations rather than the legal causes of action asserted.” Id. at

754. Federal policy embodied in the FAA favors agreements to arbitrate, and courts must

resolve any doubts about an arbitration agreement's scope in favor of arbitration. Id. at

753. If the arbitration agreement encompasses the claims and the party opposing

arbitration has failed to prove its defenses, the trial court has no discretion but to compel

arbitration and stay its own proceedings. Id. at 753-54; D.R. Horton, Inc. v. Brooks, 207

S.W.3d 862, 866-67 (Tex. App.–Houston [14th Dist.] 2006, no pet.); Feldman/Matz

Interests, L.L.P. v. Settlement Capital Corp., 140 S.W.3d 879, 883 (Tex. App.–Houston

[14th Dist.] 2004, no pet.).

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 In the instant case, the Program provides, in part:

The Program is designed to provide a means for the quick, fair, accessible,
and inexpensive resolution of Disputes between the Company and the
Company’s present and former Employees and Applicants for employment,
related to or arising out of a current, former, or potential employment
relationship with the Company. The Program is intended to create an
exclusive procedural mechanism for the final resolution of all Disputes falling
within its terms.

....

“Dispute” means all legal and equitable claims, demands, and controversies,
of whatever nature or kind, whether in contract, tort, under statute or
regulation, or some other law, between persons bound by the Program or by
an agreement to resolve Disputes under the Program . . . , including, but not
limited to, any matters with respect to:

1. this Program;

2. the employment or potential re-employment of an Employee, including
the terms, conditions, or termination of such employment with the
Company;

....

4. any other matter related to or concerning the relationship between the
Employee and the Company including, by way of example and without
limitation, allegations of: discrimination based on race, sex, religion,
national origin, age, veteran status or disability; sexual or other kinds
of harassment; workers’ compensation retaliation; defamation;
infliction of emotional distress, antitrust claim concerning wages or
otherwise, or status, claim or membership with regard to any
employee benefit plan;

The Program expressly provides that it applies to “any” dispute, except as provided therein,

and states that “[a]ll Disputes not otherwise settled by the Parties shall be finally and

conclusively resolved under this Program and the Rules.” Herrera signed an

acknowledgment regarding the Program in which he averred that “I acknowledge and

understand that I am required to adhere to the Dispute Resolution Program and its

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requirement for submission of disputes to a process that may include mediation and/or

arbitration.”

Herrera’s arguments below and on appeal do not deny the existence of the Program

or his acknowledgment thereof, nor does he argue that his claims fall outside the scope

of the Program. Accordingly, we conclude that relator has established the existence of an

arbitration agreement, and, given the breadth of the arbitration agreement, the claims in

this lawsuit fall within the scope of this agreement. See, e.g., In re FirstMerit Bank, N.A.,

52 S.W.3d at 754.

V. Defenses

Having concluded that a valid arbitration agreement exists and Herrera’s claims fall

within the scope of that agreement, we now turn our attention to Herrera’s alleged

defenses to arbitration. See In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367 (Tex.

App.–Houston [14th Dist.] 2000, orig. proceeding); City of Alamo v. Garcia, 878 S.W.2d

664, 665 (Tex. App.–Corpus Christi 1994, no writ).

A. Illusory

Herrera contends that the arbitration agreement “is illusory because Nabors can

unilaterally terminate the program without notice” to him. An arbitration agreement may

be illusory if a party can unilaterally avoid the agreement to arbitrate. See Palm Harbor

Homes, Inc., 195 S.W.3d at 677; D.R. Horton, Inc., 207 S.W.3d at 867 (“An illusory

promise is one that fails to bind the promisor because he retains the option of discontinuing

performance without notice.”). In the instant case, relevant provisions of the Program

provide:

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 6. Amendment

A. This Program may be amended by [Nabors] at any time by
giving at least 10 days' notice to current Employees. However,
no amendment shall apply to a Dispute for which a proceeding
has been initiated pursuant to the Rules, unless otherwise
agreed.

B. [Nabors] may amend the Rules at any time by serving notice
of the amendments on AAA [American Arbitration Association],
and JAMS [Judicial Arbitration and Mediation Services].
However, no amendment of the Rules shall apply to a Dispute
for which a proceeding has been initiated pursuant to the
Rules unless otherwise agreed.

7. Termination

This Program may be terminated by [Nabors] at any time by giving at
least 10 days' notice of termination to current Employees. However,
termination shall not be effective as to Disputes for which a
proceeding has been initiated pursuant to the Rules prior to the date
of termination unless otherwise agreed.

Contrary to Herrera’s argument, the agreement at issue herein is not illusory. See J.M.

Davidson, Inc., 128 S.W.3d at 230. The Texas Supreme Court has rejected this argument

under similar circumstances. See Halliburton, 80 S.W.3d at 569-70. Nabors's right to

amend or terminate the Program is qualified: any amendment or termination of the

arbitration agreement is subject to ten days’ notice to the employee and is inapplicable to

arbitration proceedings that have already been initiated. As such, the promise to arbitrate

is not illusory, and the agreement to arbitrate is enforceable. Kellogg, 80 S.W.3d at 616

(holding that an agreement to arbitrate was not illusory when it could be amended or

terminated by giving at least ten days’ notice and such amendments would not apply to a

dispute for which proceedings had been initiated); see Nabors Drilling USA, LP, 198

S.W.3d at 248-49 (reaching the same result based on the same language as in the instant

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case). Nabors did not retain a unilateral right to terminate or change the provisions of the

arbitration agreement, and accordingly, we reject Herrera’s arguments otherwise.

B. Indefiniteness

Herrera contends that the arbitration agreement is too indefinite to show a

meaningful agreement to arbitrate his claims. Arbitration agreements are interpreted under

traditional contract principles. See J.M. Davidson, Inc., 128 S.W.3d at 227. An ambiguity

exists only if the contract language is susceptible to two or more reasonable

interpretations. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).

If the written instrument can be given a certain or definite legal meaning or interpretation,

then it is not ambiguous and the court will construe the contract as a matter of law. See

Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).

Herrera contends that the agreement to arbitrate omits essential terms because his

acknowledgment does not specify the entity authorized to conduct the arbitration, the rules

for selecting the entity, the procedure to be used in conducting the arbitration, or other

matters pertaining to arbitration. However, Herrera’s arguments focus solely on the

acknowledgment that he executed and fail to include reference to the Program itself.

The Program expressly states it “is intended to create an exclusive procedural

mechanism for the final resolution of all Disputes falling within its terms,” that “proceedings

under the Program shall be the exclusive, final and binding method by which Disputes are

resolved,” and that “all Disputes not otherwise settled by the Parties shall be finally and

conclusively resolved under this Program and the Rules.” The Program’s detailed “Rules”

establish procedures for initiating arbitration, appointing an arbitrator, and handling the

arbitration itself, including matters such as hearings, discovery, representation, the record,

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evidence, post-hearing submissions, and closing the arbitration proceedings. The Program

authorizes a trial court to enter a judgment on the arbitrator's award. The Program also

provides for mediation under certain circumstances. The relevant provision provides: “At

any time before the proceeding is closed, the Parties may agree to mediate their dispute

by notifying AAA [American Arbitration Association], or JAMS [Judicial Arbitration and

Mediation Services]. AAA or JAMS shall determine what procedures apply to any such

mediation.” The foregoing language indicates that Herrera’s disputes must be arbitrated

unless the parties agree to mediation and notify the designated organization in a timely

manner. The acknowledgment that Herrera signed states that he “acknowledge[s] and

understand[s] that [he] is required to adhere to the Dispute Resolution Program and its

requirement for submission of disputes to a process that may include mediation and/or

arbitration.”

Considering the Program in its entirety, the Program provides for the arbitration of

Herrera’s disputes in clear and definite language. Thus, we hold that this language evinces

a “meaningful agreement” and is sufficiently certain to show that Herrera’s claims fall within

the scope of the arbitration agreement.

C. Unconscionability

Herrera contends that the arbitration agreement is unconscionable (1) because it

allows Nabors to unilaterally select the arbitrators, and (2) because the costs of arbitration

have not been determined. We reject Herrera’s contentions.

Contrary to Herrera’s argument, the Program does not vest Nabors with the sole

discretion to select the arbitrators. The arbitration agreement provides that AAA or JAMS

will simultaneously send an identical list of persons chosen from a panel of qualified

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arbitrators to each of the arbitrating parties, and each arbitrating party has fourteen days

to strike any names objected to and renumber the remaining names in order of preference.

Thus, the record fails to support Herrera’s contention that the agreement is unconscionable

because it allows Nabors to select the arbitrators.

Herrera also contends that the arbitration agreement is unconscionable because the

costs of arbitration may be excessive for Herrera. Both the United States and Texas

Supreme Court have recognized that the existence of large arbitration costs could preclude

litigants from effectively vindicating their statutory rights in an arbitral forum. Green Tree

Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000); FirstMerit Bank, N.A., 52 S.W.3d at 756.

While neither court specified how detailed the showing of prohibitive expense must be, the

party opposing arbitration must prove the likelihood of incurring such costs and produce

some specific information substantiating the alleged costs. Green Tree Fin. Corp., 531

U.S. at 90; FirstMerit Bank, N.A., 52 S.W.3d at 756; see In re December Nine Co., 225

S.W.3d 693, 702 (Tex. App.–El Paso 2006, orig. proceeding).

As an initial matter, Herrera failed to present this argument to the trial court, and

accordingly, it is not preserved for our review. See TEX . R. APP. P. 33.1. Moreover, even

if Herrera had made this argument, the record is devoid of evidence regarding the alleged

costs of the arbitration or Herrera’s ability, or lack thereof, to pay such costs. Thus,

because the record contains no specific evidence that Herrera would actually be charged

excessive arbitration fees, there is legally insufficient evidence that the arbitration

agreement is unconscionable based on excessive costs. FirstMerit Bank, N.A., 52 S.W.3d

at 757; December Nine Co., 225 S.W.3d at 702. This issue is overruled.

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 D. Equivalent and Accessible Forum

Finally, Herrera contends that the arbitration agreement is unenforceable because

it deprives him of an “equivalent and accessible forum in which to effectively vindicate his

employment rights” under the Texas Labor Code. The Texas Supreme Court has recently

analyzed arbitration agreements as they pertain to statutory claims:

An arbitration agreement covering statutory claims is valid so long as the
arbitration agreement does not waive the substantive rights and remedies
the statute affords and the arbitration procedures are fair, such that the
employee may “effectively vindicate his statutory rights.” Federal courts,
analyzing the enforceability of arbitration provisions relating to federal
statutory claims, have noted that such contracts are not enforceable when
a party is forced to “forgo the substantive rights afforded by the statute,” as
opposed to merely “submit[ting] to resolution in an arbitral, rather than a
judicial, forum.” In the context of federal claims, either an expression of
federal intent to exclude certain categories of claims from arbitration, or the
excessive waiver of statutory rights, may render a particular dispute
un-arbitrable. State courts, bound by the FAA under the supremacy clause,
have more limited power, as the FAA preempts state laws that specifically
disfavor arbitration.

In re Poly-America, L.P., 262 S.W.3d 337, 349 (Tex. 2008) (citations omitted). Herrera

asserts that “insufficient information exists to determine all the ways in which the arbitration

agreement in question may thwart [his] attempts to vindicate his rights under the Texas

Commission on Human Rights Act . . . and Chapter 451.001 of the Texas Labor Code

because of the agreement’s indefiniteness.” Herrera only specifically complains, however,

that the agreement is unenforceable because an arbitral forum deprives him of the right

to a trial by jury. Texas law does not prohibit a party from contractually waiving its

constitutional right to a trial by jury. In re Prudential Ins. Co. of America, 148 S.W.3d 124,

132-33 (Tex. 2004) (orig. proceeding); In re Credit Suisse First Boston Mortg. Capital,

L.L.C., 257 S.W.3d 486, 490 (Tex. App.–Houston [14th Dist.] 2008, orig. proceeding). This

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issue is overruled.

VI. Conclusion

In conclusion, having rejected each of Herrera’s alleged defenses to arbitration, we

conditionally grant Nabors’s petition for writ of mandamus. The stay previously imposed

by this Court is lifted. See TEX . R. APP. P. 52.10(b) ("Unless vacated or modified, an order

granting temporary relief is effective until the case is finally decided."). We direct the trial

court to vacate its order denying arbitration and to issue an order compelling arbitration.

We are confident that the trial court will promptly comply, and our writ will issue only if it

does not.

________________________________
GINA M. BENAVIDES,
Justice

Memorandum Opinion delivered and
filed this the 27th day of January, 2009.

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