Denar Restaurants, LLC v. Carole King

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH

NO. 02-13-00142-CV

DENAR RESTAURANTS, LLC APPELLANT

V.

CAROLE KING APPELLEE

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FROM THE 48TH DISTRICT COURT OF TARRANT COUNTY

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MEMORANDUM OPINION 1

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Appellant Denar Restaurants, LLC files this interlocutory appeal

challenging the trial court’s denial of its motion to compel arbitration. We affirm

the trial court’s order.

1
See Tex. R. App. P. 47.4.
 I. Background

On October 4, 2010, Denar Restaurants hired Appellee Carole King to be

a waitress at a Denny’s Restaurant in North Richland Hills, Texas. 2 King

reported to the restaurant for work and training on October 11. According to

King, Michael Heaton, the general manager of the restaurant, began sexually

harassing her shortly after she began her employment, and he falsely imprisoned

and assaulted her on or about October 14. King alleges that the level of

harassment and assault became untenable, and as a result, she could no longer

work at the restaurant. King claims that she last worked at the restaurant on

October 19 and that she was constructively discharged on October 20.

As a result of the alleged assault, King filed suit against Denar

Restaurants. 3 Denar Restaurants filed a motion to compel arbitration, claiming

King was required to arbitrate her dispute with Denar Restaurants pursuant to a

“Mutual Agreement to Arbitrate” (the Agreement) that Denar Restaurants claims

2
Denar Restaurants independently operated the restaurant in accordance
with the terms of a franchise agreement between DFO, LLC, an affiliate of
Denny’s, Inc., as franchisor, and Denar, LLC, as franchisee.
3
King also sued Heaton, Denny’s, Inc., Denar, LLC, and Sun Holdings,
LLC. Sun Holdings, LLC provided administrative services to Denar Restaurants,
including payroll processing, accounting, and record-keeping. King obtained an
interlocutory default judgment against Heaton on liability, and she nonsuited
Denny’s, Inc. King later amended her pleading to include claims against
Guillermo Perales, an alleged alter ego of Denar Restaurants, Denar, LLC, and
Sun Holdings, LLC and against EYM Diner of DFW, LLC, an entity to which
Denar Restaurants, Denar, LLC, and Sun Holdings, LLC allegedly fraudulently
transferred their assets after King filed suit. Denar, LLC, Sun Holdings, LLC,
Perales, and EYM Diner of DFW, LLC are not parties to this appeal.
2
King received on October 11, 2010. In response, King argued that the

Agreement never became effective pursuant to the following provisions in the

Agreement:

1. Effective Date

The effective date of this Mutual Agreement to Arbitrate
Claims (“Agreement”) is stated below. If Employee receives a copy
of this Agreement prior to commencing work at Company,
Employee’s commencement of work at Company shall constitute
acceptance of the terms and conditions of this Agreement regardless
of whether or not Employee signs this document and shall be the
Effective Date of this Agreement. For any other Employee, the
Effective Date of this Agreement shall occur ten (10) calendar days
after Employee receives notice of the terms and conditions of this
Agreement and Employee continues to work for Company which
shall indicate conclusively that he or she accepts the terms and
conditions of this Agreement.

For Employees who commence or continue employment at
Company as of their respective Effective Date, Company and
Employee mutually agree to resolve Covered Claims which occur on
or after the Effective Date according to the terms and conditions of
the Agreement.

King further argued that the Agreement was unenforceable because it was

not signed by either Denar Restaurants or King, it lacked consideration, and it

was procedurally and substantively unconscionable. In addition, King claimed

that Denar Restaurants waived its right to arbitration by judicial conduct, that

sexual assault claims were outside the scope of the Agreement, and that the

Agreement was induced or procured by fraud.

After an evidentiary hearing, the trial court denied Denar Restaurants’s

motion, stating in its order “that the parties are not bound by an arbitration

3
agreement and that the current dispute or controversy between the parties is not

within the scope of an enforceable arbitration agreement.” Denar Restaurants

and King each submitted proposed findings of fact and conclusions of law, but

the trial court did not file any findings or conclusions. This appeal followed.

II. Discussion

In its sole issue, Denar Restaurants argues that the trial court abused its

discretion by denying its motion to compel arbitration. Denar Restaurants

complains that the arbitrator, not the trial court, should determine whether the

Agreement became effective by its terms. Alternatively, Denar Restaurants

contends that even if the trial court had the authority to determine the existence

of the Agreement, the trial court abused its discretion because Denar

Restaurants established that the Agreement was a valid agreement to arbitrate

and that King’s claims are within the scope of the Agreement, 4 shifting the

burden to King to establish an affirmative defense to the Agreement, which it

argues she failed to do. 5

4
In her fifth amended petition, King asserts claims of assault and battery,
false imprisonment, negligence, discrimination and sexual harassment, vicarious
liability/respondeat superior, breach of contract, intentional infliction of emotional
distress, piercing the corporate veil/alter ego, and fraudulent transfer and
conspiracy. Denar Restaurants admits that King’s fraudulent transfer/conspiracy
claims are not within the Agreement’s scope.
5
In its reply brief, Denar Restaurants argues that the trial court abused its
discretion by excluding evidence of King’s prior convictions. See Tex. R. Evid.
609. Denar Restaurants did not raise or argue this issue in its opening brief, and
it is not responsive to the arguments contained in King’s brief. See Tex. R. App.
P. 38.3 (stating that appellant may file a reply brief addressing any matter in
4
A. Standard of Review

We review the trial court’s denial of a motion to compel arbitration for an

abuse of discretion. See In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643

(Tex. 2009) (orig. proceeding); Cleveland Constr., Inc. v. Levco Constr., Inc., 359

S.W.3d 843, 851–52 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d)

(explaining standards of review for arbitration appeals). A trial court abuses its

discretion when it refuses to compel arbitration pursuant to a valid and

enforceable arbitration agreement. In re Halliburton Co., 80 S.W.3d 566, 573

(Tex. 2002) (orig. proceeding), cert. denied, 537 U.S. 1112 (2003).

Under this standard, we review the trial court’s legal determinations de

novo and defer to the trial court’s factual determinations if they are supported by

the evidence. Cleveland Constr. Inc., 359 S.W.3d at 851–52. In reviewing the

trial court’s factual determinations, we must credit favorable evidence if a

reasonable fact finder could and disregard contrary evidence unless a

reasonable fact finder could not. Kroger Tex. Ltd. P’ship v. Suberu, 216 S.W.3d

788, 793 (Tex. 2006). We are required to consider only the evidence and

inferences tending to support the finding under attack and to disregard all

evidence and inferences to the contrary. In re Trammell, 246 S.W.3d 815, 820

appellee’s brief); Marin Real Estate Partners, L.P. v. Vogt, 373 S.W.3d 57, 72
(Tex. App.—San Antonio 2011, no pet.) (declining to consider issues raised in
reply brief that were not raised in appellant’s original brief or raised in response
to appellee’s brief); Lopez v. Montemayor, 131 S.W.3d 54, 61 (Tex. App.—San
Antonio 2003, pet. denied) (“A reply brief is not intended to allow an appellant to
raise new issues.”). Therefore, we do not consider this issue.
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(Tex. App.—Dallas 2008, orig. proceeding). Because no findings of fact or

conclusions of law were filed, we must uphold the trial court’s decision if there is

sufficient evidence to support it on any legal theory asserted. Shamrock Foods

Co. v. Munn & Assocs., Ltd., 392 S.W.3d 839, 844 (Tex. App.—Texarkana 2013,

no pet.); Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 81 (Tex.

App.—Houston [1st Dist.] 1988, no writ).

B. Applicable Law

The Agreement provides that the Federal Arbitration Act (FAA) governs all

aspects of this Agreement. See In re AdvancePCS Health L.P., 172 S.W.3d

605–06 & n.3 (Tex. 2005) (orig. proceeding) (stating that FAA governs arbitration

in Texas if parties expressly contracted for FAA’s application). The FAA

provides, in relevant part:

A written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.

9 U.S.C.A. § 2 (West 2009). This provision has been described as reflecting

both a “liberal federal policy favoring arbitration” and the “fundamental principle

that arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion, 131

S. Ct. 1740, 1745 (2011) (citing Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63,

67, 130 S. Ct. 2772, 2776 (2010); Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941 (1983)). “The FAA thereby

places arbitration agreements on an equal footing with other contracts, . . . and

6
requires courts to enforce them according to their terms.” Rent-A-Center, 561

U.S. at 67, 130 S. Ct. at 2776 (citing Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440, 443, 126 S. Ct. 1204, 1206 (2006); Volt Info. Scis., Inc. v. Bd. of

Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255

(1989)).

“Under the FAA, ordinary principles of state contract law determine

whether there is a valid agreement to arbitrate.” In re Kellogg Brown & Root,

Inc., 166 S.W.3d 732, 738 (Tex. 2005) (orig. proceeding). “Because arbitration is

contractual in nature, the FAA generally ‘does not require parties to arbitrate

when they have not agreed to do so.’” Id. (quoting Volt Info. Scis., Inc., 489 U.S.

at 478, 109 S. Ct. at 1255 (“Arbitration under the [FAA] is a matter of consent, not

coercion . . . .”)). A party seeking to compel arbitration has the initial burden to

establish (1) the existence of a valid, enforceable arbitration agreement and

(2) that the claims at issue fall within the arbitration agreement’s scope. In re

Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding);

Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 701 (Tex. App.—Fort

Worth 2006, pet. denied). If the party seeking arbitration carries its initial burden,

the burden shifts to the opposite party to present evidence of an affirmative

defense. AdvancePCS Health L.P., 172 S.W.3d at 607.

While a strong presumption favoring arbitration exists, the presumption

arises only after the party seeking to compel arbitration proves that a valid

arbitration agreement exists. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,

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227 (Tex. 2003). In deciding whether a party has met its initial burden, we do not

resolve doubts or indulge a presumption in favor of arbitration. Id. Rather, “the

presumption arises only after the party seeking to compel arbitration proves that

a valid arbitration agreement exists.” Id.

C. Application

The dispositive issue in this case is whether the alleged Agreement

between Denar Restaurants and King became effective by its terms. The

existence of a valid arbitration agreement “is therefore a gateway matter for the

court to decide.” In re Rubiola, 334 S.W.3d 220, 224 (Tex. 2011) (orig.

proceeding) (citing In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005)

(orig. proceeding)); see, e.g., Granite Rock Co. v. Int’l Bhd. of Teamsters, 130

S. Ct. 2847, 2855–56 (2010) (“It is . . . well settled that where the dispute at issue

concerns contract formation, the dispute is generally for courts to decide.”); DK

Joint Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011) (“[It] is for the

courts and not the arbitrator to decide in the first instance[ ] a dispute over

whether the parties entered into any arbitration agreement in the first place.”);

Will–Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 212 (5th Cir. 2003) (“We

vacate the order compelling arbitration and remand the case to the district court,

concluding that where the very existence of any agreement to arbitrate is at

issue, it is for the courts to decide based on state-law contract formation

principles.”).

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 Whether an enforceable agreement to arbitrate exists between Denar

Restaurants and King is a legal question we review de novo. See In re Jindal

Saw Ltd., 264 S.W.3d 755, 761 (Tex. App.—Houston [1st Dist.] 2008, orig.

proceeding). As the party urging arbitration, Denar Restaurants must show that

the Agreement meets all requisite contract elements for a valid and binding

contract. See IHS Acquisition No. 131, Inc. v. Iturralde, 387 S.W.3d 785, 791

(Tex. App.—El Paso 2012, no pet.) (citing Davidson, 128 S.W.3d at 228).

Formation of a binding contract requires: “(1) an offer; (2) acceptance in strict

compliance with the terms of the offer; (3) a meeting of the minds; (4) each

party’s consent to the term; and (5) execution and delivery of the contract with

the intent that it be mutual and binding.” Id. (citing Cessna Aircraft Co. v. Aircraft

Network, L.L.C., 213 S.W.3d 455, 465 (Tex. App.—Dallas 2006, pet. denied)).

Section 1 of the Agreement provides that it becomes effective upon the

occurrence of one of two events. First, “[i]f Employee receives a copy of this

Agreement prior to commencing work at Company, Employee’s commencement

of work at Company shall constitute acceptance of the terms and conditions of

this Agreement regardless of whether or not Employee signs this document and

shall be the Effective Date of this Agreement.” Second, “[f]or any other

Employee, the Effective Date of this Agreement shall occur ten (10) calendar

days after Employee receives notice of the terms and conditions of this

Agreement and Employee continues to work for Company which shall indicate

conclusively that he or she accepts the terms and conditions of this Agreement.”

9
Section 1 further provides, “For Employees who commence or continue

employment at Company as of their respective Effective Date, Company and

Employee mutually agree to resolve Covered Claims which occur on or after the

Effective Date according to the terms and conditions of this Agreement.” The

Agreement also states that it “commences on the Effective Date and applies to

all Covered Claims which occurred on or after the Effective Date.”

At the hearing on the motion to compel, King testified that her first day of

work at the restaurant was October 11, 2010. Judy Lynn, the manager on duty

that day, gave King some papers and asked her to sign them before she started

her training. Denar Restaurants claims Lynn gave King a new hire packet, which

included various employment forms, including the Agreement, and a document

entitled “Receipt of Employment Documents.”

The “Receipt of Employment Documents” is a list of documents Denar

Restaurants claims were included in King’s new hire packet. At the top of the

“Receipt of Employment Documents,” there is an acknowledgement that states, “I

. . . agree that I have received and reviewed the following documents.” This

acknowledgment is followed by the instruction, “Please initial after each

document described below.” Several employment-related documents are then

listed—including the Agreement—each with a blank to the right for the recipient’s

initials. At the bottom of the “Receipt of Employment Documents,” there is a

space for the employee’s signature and the date.

10
 King claimed that she never received a copy of the Agreement and that

neither Lynn nor anyone else associated with the restaurant told her about the

Agreement. King testified that she saw the Agreement for the first time on

January 25, 2013, the second day of the hearing on the motion to compel. Denar

Restaurants offered a “Receipt of Employment Documents” allegedly bearing

King’s initials in the blanks next to each document listed and her signature at the

bottom as proof of King’s receipt of the Agreement. King admitted that she

signed the “Receipt of Employment Documents,” but she denied that the initials

in the blanks were hers.

Susan Abbey, a handwriting expert hired by Denar Restaurants, testified

that she compared King’s signature on the “Receipt of Employment Documents”

with several known exemplars of King’s signature and concluded that the

signature at the bottom of the “Receipt of Employment Documents” was made by

the same person who made the exemplars. Abbey further testified that the

initials in the blank beside the Agreement in the list of documents in the “Receipt

of Employment Documents” were made by the same person who made the

initials in the blanks beside the other documents in the list. Abbey further opined

that the initials in the blank beside the Agreement in the list of documents were

written in the same ink as King’s signature and were consistent with King’s

printing in her employment application.

King testified that her last day of work was October 19, 2010. King alleged

in her pleadings that she was constructively discharged on October 20, 2010. At

11
the hearing, King explained that she believed that October 20, 2010, was the

date that either she or her attorney notified Denar Restaurants that she would not

be returning to work.

Denar Restaurants argues that the phrase “commencing work” in section 1

of the Agreement should not be construed to “encompass a day of nothing more

than training, orientation, and form completion in anticipation of beginning the

job.” Denar Restaurants contends that a more “plain meaning” reading of the

phrase “commencing work” is one that interprets “work” as the employee’s actual

performance of the job for which the employee was hired, which, in King’s case,

was waitressing. We disagree. The word “work,” which is undefined in the

Agreement, has a well-accepted common meaning: “physical or mental exertion

to attain an end, [especially] as controlled by and for the benefit of an employer;

labor.” Black’s Law Dictionary 1742 (9th ed. 2009). Denar Restaurants required

all new employees to go through orientation and training, during which time new

employees completed the documents in the new hire packet. And Denar

Restaurants admitted that King was paid for October 11, 2010, including the time

she spent completing the new hire packet and in training. Therefore, we

conclude that King commenced work on October 11, 2010, when she began the

orientation and training process at the restaurant.

There was conflicting testimony as to whether King received either the

Agreement or notice of its terms and conditions. If she did not receive the

Agreement or notice of its terms and conditions, then it did not became effective

12
under either prong of section 1. If King did receive the Agreement, the earliest

she could have done so was after she commenced work on October 11, 2010,

and therefore, the Agreement did not become effective by her commencement of

work under the first prong. Thus, we look to the second prong to determine the

Effective Date of the Agreement. King testified that her last day of work was

October 19, 2010, and that she was constructively discharged on October 20,

2010. Denar Restaurants offered no contradictory evidence regarding the dates

King worked. Therefore, even if King received notice of the terms and conditions

of the Agreement after she commenced work, it never became effective by its

terms because King did not continue to work for Denar Restaurants for ten days

after receiving such notice. Accordingly, we hold that an agreement to arbitrate

did not exist between Denar Restaurants and King.

Denar Restaurants also complains that an arbitrator, rather than the trial

court, should determine whether and when the Agreement became effective

because the following provisions in the Agreement reserved all issues of

arbitrability for the arbitrator:

5. Scope of Arbitration Agreement

....

c. Other Scope of Arbitration Provisions

....

The question of whether any particular claim is a Covered
Claim under the terms of this Agreement shall be arbitrated pursuant
to the procedures set forth in this Agreement.

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 6. Procedure

a. Who Shall Arbitrate?

All arbitrations under this Agreement shall be administered by
Judicial Workplace Arbitration, Inc. under its rules for the resolution
of disputes, and if not available, then the American Arbitration
Association (“AAA”) and its rules. 6

We recognize that an arbitration agreement may give the arbitrator the

power to resolve gateway issues. See, e.g., Rent-A-Center 561 U.S. at 68–69,

130 S. Ct. at 2777 (recognizing parties can agree to arbitrate questions of

arbitrability); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115

S. Ct. 1920, 1923 (1995) (holding question of primary power to decide

arbitrability “turns upon what the parties agreed about that matter”); AT&T

Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649, 106 S. Ct. 1415,

1418 (1986) (holding parties may agree to arbitrate arbitrability). But because we

have determined that the Agreement never came into existence by its terms, we

conclude that the parties did not agree to submit any issues to the arbitrator.

6
Neither the Judicial Workplace Arbitration rules nor the AAA rules are in
the record before us. In its reply brief, Denar Restaurants points us to Rule 6a of
the AAA Employment Arbitration Rules and Mediation Procedures, which
provides as follows: “The arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or
validity of the arbitration agreement.” American Arbitration Association,
Employment Arbitration Rules and Mediation Procedures, Rule 6a (amended and
effective Nov. 1, 2009), available at http://adr.org/aaa/faces/rules.

14
 Because we have concluded that the Agreement never came into

existence, which is dispositive of this appeal, we need not address the remainder

of Denar Restaurants’s arguments. See Tex. R. App. P. 47.1. Accordingly, we

overrule Denar Restaurants’s sole issue.

III. Conclusion

Having overruled Denar Restaurants’s sole issue, we affirm the trial court’s

order denying Denar Restaurants’s motion to compel arbitration.

/s/ Anne Gardner
ANNE GARDNER
JUSTICE

PANEL: LIVINGSTON, C.J.; GARDNER and GABRIEL, JJ.

DELIVERED: May 30, 2014

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