United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT September 11, 2003
Charles R. Fulbruge III
No. 03–40325 Clerk
Summary Calendar
EDMOND HADNOT,
Plaintiff-Appellant,
versus
BAY, LTD; FELIX CISNEROS; RAYMOND SAENZ; RAUL VELA,
Defendants-Appellees.
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Appeal from the United States District Court
for the Southern District of Texas
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Before JOLLY, SMITH, and WIENER, Circuit Judges.
WIENER, Circuit Judge.
Plaintiff-Appellant Edmond Hadnot appeals the district court’s
order severing the punitive and exemplary damages prohibition
contained in the arbitration provision of the employment agreement
at issue, and compelling arbitration. Hadnot claims that the
district court erred in holding the arbitration provision of his
employment contract valid and enforceable after striking the ban on
the arbitrator’s authority to award exemplary and punitive damages
as applied to Hadnot’s Title VII claim. We affirm.
I. Facts and Proceedings
Hadnot filed suit in the district court against Defendant-
Appellee Bay, Ltd. (“Bay”) and three of his former coworkers,
alleging intentional infliction of emotional distress by all
defendants and racial discrimination in violation of Title VII by
Bay. Hadnot and Bay had entered into an employment agreement (the
“Agreement”) containing an arbitration provision. The district
court compelled arbitration after invalidating a restriction in the
arbitration provision that excludes punitive and exemplary damages
from the kinds of damages that the arbitrator is authorized to
award. Hadnot timely filed a notice of appeal.
II. Analysis
A. Standard of Review
We review a district court’s grant or denial of a motion to
compel arbitration de novo.1
B. Test for Enforceability of Arbitration Provision
Courts adjudicating a motion to compel arbitration engage in
a two-step process. First, the court asks “whether the parties
agreed to arbitrate [the] dispute.”2 If this question is answered
in the affirmative, the court asks “whether legal constraints
external to the parties’ agreement foreclosed the arbitration”3 of
1
See Webb v. Investacorp, Inc. 89 F.3d 252, 257 (5th Cir.
1996).
2
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 626 (1985). In deciding this question, courts
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).
3
Mitsubishi Motors, 473 U.S. at 628.
2
the dispute. The district court concluded that the Agreement was
enforceable —— with the exception of its prohibition of the
arbitrator’s awarding exemplary and punitive damages —— and that
Hadnot’s claims fell within its scope. We now turn to Hadnot’s
contentions on appeal.4
C. Consideration
Hadnot asserts that, under Texas law, the Agreement is
unsupported by valid consideration. He contends that the only
possible consideration on the part of Bay is “the consideration of
[Hadnot’s] application for employment, the offer of at will
employment, and the continuation of at will employment.” Hadnot
argues that two recent Texas Supreme Court cases, Light v. Centel
Cellular Company5 and In Re Halliburton Company and Brown & Root
Energy Services,6 stand for the proposition that such factors
cannot constitute consideration in an at-will employment context.
The facts of Light and In Re Halliburton distinguish them from the
instant case, however; and we find the presence of valid Texas
consideration on the part of Bay.
Light dealt with a covenant not to compete. In its discussion
4
Hadnot argues for the first time in his reply brief that
the Agreement was substantively unconscionable. As Hadnot failed
to raise that argument in his initial appellate brief, we decline
to consider it here. See Cinel v. Connick, 15 F.3d 1338, 1345
(5th Cir. 1994) (“An appellant abandons all issues not raised and
argued in its initial brief on appeal.”).
5
883 S.W.2d 642 (Tex. 1994).
6
80 S.W.3d 566 (Tex. 2002).
3
of whether there was an “otherwise enforceable agreement” to which
the covenant not to compete was ancillary, the Supreme Court of
Texas noted that “[c]onsideration for a promise, by either the
employee or the employer in an at-will employment, cannot be
dependent on a period of continued employment.”7 The court
reasoned that a promise “that depends on an additional period of
employment is illusory because it is conditioned upon something
that is exclusively within the control of the promisor.”8 In
attempting to apply this reasoning to his own case, Hadnot urges
that the Agreement’s arbitration provision is likewise unsupported
by valid consideration.
The Light court, however, discussed invalidity of
consideration in the context of a “period of continued
employment,”9 using the promise of a raise to an at-will employee
as an example (illusory because the promisor can terminate
employment before giving the raise).10 In contrast, the
consideration here —— the combination of Hadnot’s application and
Bay’s responding offer of employment —— is in no way dependent on
a period of continued employment in the context of a covenant to
arbitrate claims that arise from the period of actual employment,
7
Light, 883 S.W.2d at 644.
8
Light, 883 S.W.2d at 645 n.5.
9
Light, 883 S.W.2d at 644 (emphasis added).
10
Light, 883 S.W.2d at 645 n.5.
4
regardless of how long it might continue. Here, the application,
offer, and acceptance all occurred at the “front end” of the
employment relationship. None is dependent on continued
employment, and none is illusory, because any eventual arbitration
will, of necessity, relate to conduct that occurred during the term
of employment —— even if only a day or so —— unlike proscribed
competition which by definition can occur only after employment
terminates.
This was exactly the distinction made by the court in In Re
Halliburton: “[In] contrast [to Light], the [Halliburton Dispute
Resolution] Program is not dependent on continuing employment.
Instead, it was accepted by the employee’s continuing employment.”11
The instant situation is analogous to In Re Halliburton, not
Light. The Agreement was formed when Hadnot signed the document
and began work. Even though Bay could terminate Hadnot at any time
thereafter, the fact remains that Bay had already performed, viz.,
accepted Hadnot’s job application, in exchange for Hadnot’s
agreement to arbitrate any claims arising out of any period of
employment —— even one day. The In Re Halliburton court’s language
accurately sums up the situation presently before us: “Even if
[the] employment had ended shortly thereafter, the promise to
arbitrate would have been binding and enforceable.”12
11
In Re Halliburton, 80 S.W.3d at 569.
12
Id.
5
D. Sequence
Hadnot also claims that he had been offered the job prior to
signing the Agreement, so that Bay’s acceptance of his job
application and offer of employment can only be past consideration,
if they are consideration at all.13 The appropriate question,
however, is whether Bay would have considered Hadnot’s application
and offered him employment had he refused to sign the Agreement,
not whether Bay insisted that he sign the moment that he walked
through the door. It is clear that Bay’s offer of employment was
contingent on Hadnot’s signing the Agreement. Indeed, the
Agreement itself specifies that Bay’s acceptance of Hadnot’s job
application and any offer of employment is “[i]n exchange for” the
willingness of the prospective employee to arbitrate all employment
disputes.
E. Severability of the Punitive Damages Clause
Hadnot also argues that the entire arbitration provision is
void because the restriction of the arbitrator’s power proscribing
any award of exemplary and punitive damages —— which is unlawful in
13
Although Hadnot claims he was “told that [he] had the job
before [signing] any papers,” Bay asserts that Hadnot executed
the Agreement on two occasions, both on submission of his
application and after accepting the offer of employment. The
record supports Bay: There are two signed copies of the Agreement
in the record, respectively dated December 28th and 29th, 2000,
placing both before Hadnot’s employment start date, which he has
indicated was “[o]n or about January 2001.”
6
the context of his Title VII claim14 —— is integral to the overall
contract of employment and therefore cannot be severed. We
disagree. The purpose of the arbitration provision is to settle
any and all disputes arising out of the employment relationship in
an arbitral forum rather than a court of law. Even with its
unlawful limitation on the types or permissible damage awards
lifted, so that the decision maker is free to address punitive
damages, the arbitration clause remains capable of achieving this
goal. In fact, the lifting of that illegal restriction enhances
the ability of the arbitration provision to function fully and
adequately under the law.
As a potential arbitrator in this case is now authorized to
award punitive damages, as well as compensatory damages, Hadnot’s
rights under Title VII are fully protected. The severing of such
a prohibition or restriction serves to expand the scope of
arbitration rather than reduce or impair it, thereby freeing that
provision to fulfill its intended function.
III. Conclusion
For the foregoing reasons, the district court’s order voiding
14
As the district court correctly noted, the Agreement’s
ban on punitive and exemplary damages is unenforceable in a Title
VII case. The Supreme Court has held: “By agreeing to arbitrate
a statutory claim, a party does not forego the substantive rights
afforded by the statute; it only submits to their resolution in
an arbitral, rather than a judicial, forum.” Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985).
Because Title VII provides for statutory punitive damages, the
district court found the ban on such damages unenforceable. We
agree with that determination.
7
the prohibition of awarding punitive damages and compelling
arbitration is, in all respects,
AFFIRMED.
8