Proof of Contract-Formation for Arbitration vs. Credit Card Agreements: Inconsistent Case Law

FORMATION-PROOF DISPARITY: ARBITRATION AGREEMENTS AND CREDIT CARD AGREEMENTS TREATED DIFFERENTLY 
FOR NO READILY APPARENT LEGAL REASONS

In several recent cases, Texas courts have denied motions to compel arbitration in the employment context, and appellate courts have affirmed the denial, where the employer failed to establish the requisite contract-formation facts: that the employee was given notice of the arbitration agreement and continued to work, thereby accepting the agreement by conduct rather than with a wet-ink signature or formal acknowledgment.

See Stagg Restaurants, LLC v.. Serra, No. 04-18-00527-CV (Tex.App.- San Antonio, Feb. 13, 2019, no pet.) (trial court's denial of motion to compel arbitration affirmed in interlocutory appeal where employer failed to prove notice of arbitration provision in occupational injury plan document to employee who later brought work-related injury suit); Alorica, Inc. v. Tovar, No. 08-18-00008-CV (Tex.App.- El Paso, Nov. 26, 2018)(trial court's denial of former employer's motion to compel arbitration affirmed where trial court resolved conflicting evidence on whether terminated employee had notice of mandatory arb agreement); Kmart Stores of Tex., L.L.C. v. Ramirez, 510 S.W.3d 559, 565 (Tex.App.-El Paso 2016, pet. denied) (where employer provided evidence that employee had logged on to computer and received notice of arbitration agreement, employee bore burden of raising a fact issue contesting formation, which she met by filing a sworn denial of notice).  

"An employer may enforce an arbitration agreement entered into during an at-will employment relationship if the employee received notice of the employer's arbitration policy and accepted it." In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161, 162 (Tex. 2006) (per curiam) (orig. proceeding). "An at-will employee who receives notice of an employer's arbitration policy and continues working with knowledge of the policy accepts the terms as a matter of law." Id. at 163.

The holdings regarding the evidence needed to prove an agreement to arbitrate was formed in the employment context stand in marked contrast to Texas courts’ sloppy handling of contract-formation in consumer debt cases. In the latter category of civil suits, Texas courts routinely ignore the several elements of contract formation (or merely pay lip service to them when reciting the caselaw) and take an affiant’s averment that the attached form contract is the applicable contract as sufficient.

The elements necessary for formation of a valid contract are (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 terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Thornton v. AT& T Advert., L.P., 390 S.W.3d 702, 705 (Tex. App.-Dallas 2012, no pet.). For a contract to be enforceable, it must be supported by consideration. In re OSG Ship Mgmt., Inc., 514 S.W.3d 331, 338 (Tex. App.-Houston [14th Dist.] 2016, no pet.) (orig. proceeding). 

In credit card collection cases, evidence of card use (shown with billing statements) is deemed to constitute acceptance of whatever the contract terms were, rather than the creditor being required to show (in addition to card use) that the specific version of a boilerplate agreement attached as an exhibit to a motion for summary judgment (or a business records affidavit) was furnished to the cardholder prior to use of the account by that cardholder, so as to satisfy the elements of offer and acceptance, based on a meeting of the minds on the terms and conditions stated in the offer.
  

The same lax judicial treatment often extends to the issue of whether there is sufficient proof that the consumer agreed to the account-specific finance charge terms (interest rates and penalty charges such as late fees and overlimit fees), which are often not set forth in generic credit card agreements, but are in are shown on a separate Truth-in-Lending disclosure document, which may be denominated in various ways (Pricing Schedule, Terms & Conditions, Important Terms of Your Account, etc.), depending on the identity of the creditor. The additional document is often absent from creditor's or debt buyers' summary judgment proof and trial exhibits, depriving the interest-rate component of the plaintiff's claim of its contractual foundation.  

Incidentally, many boilerplate cardmember agreements also contain arbitration agreements, but those rarely become an issue in collection litigation because neither party moves to compel arbitration. In theory, however, and under general common-law principles of contract-formation, there is no distinction between formation of an agreement to arbitrate and other agreements because even under the Federal Arbitration Act, the formation question is one of ordinary state contract law, rather than one governed by the FAA itself.

For the same reason, the FAA’s public policy preference in favor of arbitration does not come into play unless and until the existence of valid agreement to arbitrate has been established either by virtue of signatures of the agreement or by other competent contract-formation proof, such as evidence supporting the theory of implied consent by conduct. See Huckaba v. Ref-Chem, L.P., 892 F.3d 686, 688-89 (5th Cir. 2018).

Also see, relatedly, Hi Tech Luxury Imports, LLC v. Morgan, No. 03-19-00021-CV (Tex.App.-Austin, Apr. 30, 2019), in which the Third Court of Appeals last month affirmed an order denying arbitration because the employer had not also signed the arbitration agreement at issue, which provided for both parties to sign it.)

Hi Tech Luxury Imports, LLC, Appellant,
v.
Townsend L. Morgan, Jr., Appellee.

No. 03-19-00021-CV.

Court of Appeals of Texas, Third District, Austin.

Filed: April 30, 2019.   

Appeal from the 345th District Court of Travis County, No. D-1-GN-18-002579, The Honorable Dustin M. Howell, Judge Presiding.

Affirmed.

Before Justices Goodwin, Baker, and Triana.

MEMORANDUM OPINION

GISELA D. TRIANA, Justice.

Appellant Hi Tech Luxury Imports, LLC (Hi Tech), appeals from the district court's order denying its motion to compel arbitration under the Federal Arbitration Act (FAA). We will affirm the district court's order.

BACKGROUND

Appellee Townsend L. Morgan, Jr., filed suit against Hi Tech, his former employer, alleging wrongful termination and age discrimination in violation of Chapter 21 of the Texas Labor Code. See Tex. Lab. Code § 21.051. After the case had been set for a jury trial, Hi Tech filed a motion to compel arbitration. In the motion, Hi Tech asserted that the parties had executed an agreement to arbitrate, and that Morgan's claims fell within the scope of that agreement. Morgan filed a response in opposition, arguing that the arbitration agreement was invalid because Hi Tech had failed to sign it. Following a hearing on the matter, the district court denied the motion to compel arbitration. This interlocutory appeal followed. See Tex. Civ. Prac. & Rem. Code § 51.016.

STANDARD OF REVIEW

"We review a trial court's order denying a motion to compel arbitration for abuse of discretion." Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018) (citing In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642-43 (Tex. 2009)). "We defer to the trial court's factual determinations if they are supported by evidence but review its legal determinations de novo." Id. A party seeking to compel arbitration under the FAA must establish that (1) there is a valid arbitration agreement, and (2) the claims in dispute fall within that agreement's scope. In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011). "Whether parties have agreed to arbitrate is a gateway matter ordinarily committed to the trial court and controlled by state law governing `the validity, revocability, and enforceability of contracts generally.'" Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 631 (Tex. 2018) (quoting Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009)). No presumption of arbitration exists until "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, 227 (Tex. 2003). "The burden of establishing the existence of an arbitration agreement is evidentiary and runs with the party seeking to compel arbitration." Fitness Entm't Ltd v. Hurst, 527 S.W.3d 699, 703 (Tex. App.—El Paso 2017, pet. denied).

DISCUSSION

"Under Texas law, a binding contract requires: `(1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with intent that it be mutual and binding.'" Huckaba v. Ref-Chem, L.P., 892 F.3d 686, 689 (5th Cir. 2018) (quoting In re Capco Energy, Inc., 669 F.3d 274, 279-80 (5th Cir. 2012)). The only question in this case is whether the parties intended that the arbitration agreement be mutual and binding, despite Hi Tech's failure to sign the agreement.

"Contracts require mutual assent to be enforceable." Baylor Univ. v. Sonnichsen,221 S.W.3d 632, 635 (Tex. 2007). "Evidence of mutual assent in written contracts generally consists of signatures of the parties and delivery with the intent to bind." Id.; New York Party Shuttle, LLC v. Bilello, 414 S.W.3d 206, 214 (Tex. App.-Houston [1st Dist.] 2013, pet. denied). However, "while signature and delivery are often evidence of the mutual assent required for a contract, they are not essential." Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 277 (Tex. 2015); see also Perez v. Lemarroy, 592 F. Supp. 2d 924, 931 (S.D. Tex. 2008) ("The Federal Arbitration Act (`FAA') only requires that an arbitration clause be in writing, without any requirement that an arbitration clause must be signed, thus, no signatures are necessary to bind parties to an arbitration agreement."). "Signatures are not required `[a]s long as the parties give their consent to the terms of the contract, and there is no evidence of an intent to require both signatures as a condition precedent to it becoming effective as a contract.'" Huckaba, 892 F.3d at 689(quoting Perez, 592 F. Supp. 2d at 930-31).

"A court can decide intent as a matter of law." Id. (citing Tricon Energy Ltd. v. Vinmar Int'l, Ltd., 718 F.3d 448, 454 (5th Cir. 2013)). "In construing a contract, a court must ascertain the true intentions of the parties as expressed in the writing itself." Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011). "We begin this analysis with the contract's express language." Id.Unless that language is ambiguous, see id., "we end it there too," Huckaba, 892 F.3d at 689.

Here, the language of the contract provides unambiguous evidence of the parties' intent to require both signatures as a condition precedent to enforcement of the agreement. Although it is true, as Hi Tech observes, that the agreement is written primarily from the employee's perspective, the document repeatedly refers to bothparties agreeing to the terms of the contract. The agreement discusses the "mutual benefits" that arbitration can provide to "both the Company and [Morgan]," and the agreement requires that "[Morgan] and the Company both agree" that any disputes "between [Morgan] and the Company" shall be submitted to arbitration. The agreement further provides that "[b]oth the Company and [Morgan] agree that any arbitration proceeding must move forward under the Federal Arbitration Act" and that "[t]his is the entire agreement between the Company and the employee." 

The agreement also contains the following statement, "I UNDERSTAND BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH I AND THE COMPANY GIVE UP OUR RIGHTS TO TRIAL BY JURY." 

This language indicates that, by agreeing to arbitrate, both parties would be giving up their rights to a jury trial, which suggests that the signatures of both parties would be required for the agreement to be enforceable. Additionally, in the signature block at the bottom of the agreement, there are lines for two signatures, one for the "Employee" and one for the "Manager" of Hi Tech. 

There is also a line next to the Manager's signature for the Manager to print his name. Moreover, both signature lines appear below the following statement, "MY SIGNATURE BELOW ATTESTS TO THE FACT THAT I HAVE READ, UNDERSTAND, AND AGREE TO BE LEGALLY BOUND TO ALL OF THE ABOVE TERMS." Thus, both parties were to indicate their mutual assent to the terms of the arbitration agreement by signing the document.

Hi Tech did not sign the arbitration agreement, and the above language indicates that the signatures of both Hi Tech and Townsend were required for the agreement to be enforceable. The burden was on Hi Tech to prove the validity of the agreement, see Henry, 551 S.W.3d at 115; Fitness Entm't Ltd., 527 S.W.3d at 703-04, and it failed to satisfy that burden here. Accordingly, we cannot conclude that the district court abused its discretion in denying Hi Tech's motion to compel arbitration. See Huckaba, 892 F.3d at 691 (refusing to enforce arbitration agreement in wrongful-termination case when employer failed to sign agreement and concluding that enforcement would allow employer to "have it both ways—argue that it did not intend to be bound because it did not sign the agreement or it did because it kept the agreement and sought to compel arbitration"); see also Simmons & Simmons Constr. Co. v. Rea, 286 S.W.2d 415, 416-17 (Tex. 1955)(concluding that signature block on contract and other language in agreement was evidence that signatures of both parties were required); In re Bunzl USA, Inc., 155 S.W.3d 202, 210-11 (Tex. App.—El Paso 2004, orig. proceeding) (same).

CONCLUSION

We affirm the district court's order.

ALEXANDER CONSTANTINE, Plaintiff,
v.
AHMAD ADAS and SWIFT AUTO HAULING, LLC, Defendants.

Civil Action No. H-18-1273.

United States District Court, S.D. Texas, Houston Division.

July 24, 2018.

MEMORANDUM AND ORDER

NANCY F. ATLAS, District Judge. 

Plaintiff Alexander Constantine filed this lawsuit under the Fair Labor Standards Act ("FLSA"). Defendant Swift Auto Hauling, LLC ("Swift") filed a Motion to Dismiss and Compel Arbitration or Stay Case ("Motion") [Doc. # 5], asserting that Plaintiff's claims were subject to a written arbitration agreement. Plaintiff filed a Response [Doc. # 6], noting that Swift did not sign the arbitration agreement on which it bases its Motion. Swift neither filed a reply nor requested an extension of the reply deadline. Having reviewed the record and governing legal authorities, the Court denies the Motion.

I. BACKGROUND

Swift operates a tow truck business, and Plaintiff was employed by Swift from June 2016 to October 2017. Plaintiff alleges that Swift failed to pay him in full for his work, and failed to pay him overtime wages for hours he worked in excess of forty (40) per week.

Swift has presented a contract signed by Plaintiff that includes an arbitration provision. The contract on which Swift relies, however, was not signed by Swift.

II. ARBITRATION AGREEMENTS

Enforcement of an arbitration agreement requires proof that (1) there is a valid agreement to arbitrate; and (2) the dispute falls within the scope of that agreement. See Huckaba v. Ref-Chem, L.P., 892 F.3d 686, 688 (5th Cir. 2018). Determining whether there is a valid arbitration agreement is a question for the Court based on state contract law. See id. The party seeking to enforce an arbitration agreement must show that the agreement meets all of the requisite elements of a contract. See id. Additionally, "because the validity of the agreement is a matter of contract, at this stage, the strong federal policy favoring arbitration does not apply." Id. at 688-89.

Under Texas law, a binding contract requires: "(1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with intent that it be mutual and binding." Id. at 689 (citations omitted). As to the fifth element, whether a signature is required to bind a party is a question of the parties' intent. Id. (citing Tricon Energy Ltd. v. Vinmar Int'l, Ltd., 718 F.3d 448, 454 (5th Cir. 2013)). "Signatures are not required as long as the parties give their consent to the terms of the contract, and there is no evidence of an intent to require both signatures as a condition precedent to it becoming effective as a contract." Huckaba, 892 F.3d at 689. 

In determining the parties' intent, the Court "must examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless." Id.

In this case, the arbitration provision in the contract at issue refers to the "Signor's successors, assigns, executors, administrators, beneficiaries, and representatives." See Subcontractor Agreement, Exh. 1 to Motion, ¶ 18.6. This reference to a "Signor" indicates the parties' intent that the contract will become binding when signed. Additionally, the contract contains a signature line for "Swift Auto Hauling, LLC" that is unsigned. The language in the Subcontractor Agreement reflects the parties' intent that a signature was required for each party to be bound to the terms of the contract, including the arbitration provision. Because Swift did not sign the agreement, neither party is bound to its terms. See Huckaba, 892 F.3d at 691.

Plaintiff argued in opposition to Swift's Motion that there was no evidence that the arbitration agreement became a binding contract absent the signature of all parties. See Response, p. 3. Swift failed to file a reply presenting such evidence. As a result, the record demonstrates, and the Court concludes, that the parties did not enter into a valid arbitration agreement.

III. CONCLUSION AND ORDER

Swift did not sign the contract that contains the arbitration provision. Moreover, Swift has not presented evidence that the parties intended Swift to be bound by the arbitration provision in the contract notwithstanding its failure to sign. As a result, it is hereby

ORDERED that Swift's Motion to Dismiss and Compel Arbitration or Stay Case [Doc # 5] is DENIED.