El Paso Appeals Court Holds Employee Failed to Prove Arbitration Agreement is Unconscionable

Texas’ Eighth District has overturned a trial court’s decision that an arbitration agreement is unconscionable.  In Whataburger Restaurants, LLC v. Cardwell, No. 08-13-00280-CV (Tex. App. – El Paso, August 13, 2014), a woman, Yvonne Cardwell, signed an acknowledgement prior to beginning working as a dishwasher for Whataburger which stated she understood that any employment or injury disputes would be subject to arbitration in Dallas.  The acknowledgment also included a provision that all Whataburger employees agreed to the arbitration policy by accepting employment with or continuing to work for the company.  After Cardwell sustained personal injuries while on-the-job, she filed a lawsuit against Whataburger in El Paso.

In response to Cardwell’s lawsuit, Whataburger filed a motion to compel arbitration.  Cardwell alleged the parties’ arbitration agreement was invalid, procedurally unconscionable, and illusory.  The woman also claimed the Federal Arbitration Act did not apply to the case and the agreement to arbitrate was unenforceable under Texas law.  After the trial court expressed concern over Cardwell’s financial ability to arbitrate the case in Dallas, Whataburger agreed to hold arbitral proceedings in El Paso instead.  Despite this, the El Paso court denied Whataburger’s motion to compel arbitration and held that the parties’ agreement to arbitrate was unconscionable.  Whataburger then filed an interlocutory appeal with the Eighth District Court of Appeals.

Although Cardwell argued the agreement was illusory and unenforceable, the appellate court stated,

… the trial court’s order does not find the arbitration agreement to be invalid nor does it conclude that the arbitration agreement is illusory. Had the trial court made such determinations, it would have no need to decide, as it did, whether the arbitration agreement was unconscionable.  Because the trial court’s order expressly denies Whataburger’s motion to compel arbitration on the sole basis that the arbitration agreement is unconscionable, we accordingly restrict our review and determine whether Cardwell established, as a defense, the unconscionability of the arbitration agreement by which the trial court could properly deny Whataburger’s motions.

Next, the El Paso Court of Appeals examined the applicable law and said,

Whether an arbitration agreement is unconscionable is a determination to be made in light of a variety of factors. Delfingen US–Texas, L.P., 407 S.W.3d at 798 (citations omitted). In determining whether a contract is unconscionable, we must examine (1) the “entire atmosphere” in which the agreement was made; (2) the alternatives, if any, available to the parties at the time the contract was made; (3) the “non-bargaining ability” of one party; (4) whether the contract was illegal or against public policy; and (5) whether the contract is oppressive or unreasonable. Id. We assess the totality of the circumstances as of the time the contract was formed. Id.; El Paso Natural Gas Company v. Minco Oil & Gas Company, 964 S.W.2d 54, 60–61 (Tex.App.-Amarillo 1997), rev’d on other grounds, 8 S.W.3d 309 (1999).

After that, the court discussed the basis on which the trial court determined the agreement at issue was unconscionable.  According to the appeals court,

The trial court’s determination of unconscionability is founded upon bases that Cardwell did not raise. The record does not support the trial court’s resolution of factual matters regarding the costs of arbitration for these parties, and the trial court’s resolution of factual matters is unsupported, as it must be, by evidence in the record. Delfingen US–Texas, L.P., 407 S.W.3d at 800. Because the trial court’s clear failure to properly analyze and apply the law of unconscionability constitutes an abuse of discretion, Whataburger’s sole issue on appeal is sustained. See In re Poly–America, L.P., 262 S.W.3d at 348; Delfingen US–Texas, L.P., 407 S.W.3d at 800.

Since Cardwell failed to prove the parties’ agreement to arbitrate was unconscionable, Texas’ Eighth District Court of Appeals in El Paso Reversed the trial court’s decision denying Whataburger’s motion to compel arbitration and remanded the case with instructions to compel arbitral proceedings.

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