in Re Jonny Luna

Opinion issued September 9, 2004

In The

Court of Appeals

For The

First District of Texas

NO. 01-03-01055-CV

IN RE JOHNNY LUNA, Relator

Original Proceeding on Petition for Writ of Mandamus

O P I N I O N

This appeal concerns the substantive unconscionability of a binding arbitration

agreement between an employer and an at-will employee. Relator, Johnny Luna,

seeks mandamus relief from the trial court’s order granting the motion to compel

arbitration and to stay litigation of real parties in interest, Poly-America, L.P. d/b/a

Pol-Tex International and Poly-America GP, L.L.C. (collectively, Poly-America).

In one issue, Luna challenges several provisions contained in the arbitration

agreement. We determine whether the following provisions contained in the

arbitration agreement are substantively unconscionable: those (1) splitting arbitration

fees, with a cap on the employee’s cost at the highest month’s salary of the preceding

year, (2) limiting available remedies, (3) limiting discovery, (4) disallowing an

arbitrator’s application of a “good cause” standard to employment claims, and (5)

making the arbitration agreements binding as to any future claims that the employee

could bring, even for disputes arising after the employer-employee relationship had

terminated. We also determine whether all of the above-mentioned provisions, as a

whole, render the arbitration agreement substantively unconscionable. We

conditionally grant mandamus relief.

Background

Poly-America hired Luna on October 21, 1998 to work as an operator in Poly-America’s plant in Mont Belvieu, Texas. When he was hired, Luna signed an

arbitration agreement. Luna continued to work for Poly-America, and, on July 18,

2002, Luna signed another document acknowledging that he had received the June

2002 employee handbook. The handbook contained another arbitration agreement

with substantively similar provisions. Luna was injured, and he filed a worker’s

compensation claim on December 7, 2002. On February 11, 2003, Poly-America

terminated Luna’s employment, and Luna subsequently sued Poly-America under the

Texas Labor Code, alleging wrongful discharge and retaliation. See T ex. Lab. Code

Ann. § 451.001 (Vernon Supp. 2004-2005). The trial court granted Poly-America’s

motion to compel arbitration and to stay litigation on September 19, 2003.

Burden of Proof and Standard of Review

Mandamus is the proper means to review an order compelling arbitration under

the Federal Arbitration Act (FAA).

In re Am. Homestar of Lancaster, Inc. , 50

S.W.3d 480, 483 (Tex. 2001). Mandamus will lie when a trial court has clearly

abused its discretion. In re MHI P’ship, Ltd. , 7 S.W.3d 918, 921 (Tex.

App.—Houston [1st Dist.] 1999, orig. proceeding).

In determining the validity of arbitration agreements, courts should apply state-law principles governing the formation of contracts. First Options of Chicago, Inc .

v. Kaplan , 514 U.S. 938, 944 , 115 S. Ct. 1920, 1924 (1995). Arbitration agreements

are strongly favored under Texas law. Prudential Sec., Inc. v. Marshall , 909 S.W.2d

896, 898 (Tex. 1995). Thus, the burden of proving unconscionability is on the party

opposing arbitration. In re FirstMerit Bank, N.A. , 52 S.W.3d 749, 756 (Tex. 2001).

An agreement to arbitrate is valid unless grounds, such as fraud or unconscionability,

exist at law or in equity for its revocation, as with any contract. Emerald Tex., Inc.

v. Peel , 920 S.W.2d 398, 402 (Tex. App.—Houston [1st Dist.] 1996, no writ).

Unconscionability

Luna asserts that the arbitration agreement is unenforceable because several of

its provisions are substantively unconscionable.

The purpose of arbitration is to streamline the dispute-resolution process and

to minimize costs. Jack B. Anglin Co. v. Tipps , 842 S.W.2d 266, 269 (Tex. 1992); see

Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 31 , 111 S. Ct. 1647, 1655

(1991) (recognizing that parties who agree to arbitrate trade the opportunity for

review and procedures of the courtroom for the simplicity, informality, and

expedition of arbitration). As a result, the fact that arbitration does not afford parties

all the rights that litigation offers is built into the nature of the process, and the parties

presumably realize that they may be waiving some litigation rights in order to gain

the convenience and savings associated with arbitration.

The FAA allows for arbitration in the employment context. See Circuit City

Stores, Inc. v. Adams , 532 U.S. 105, 113-15 , 121 S. Ct. 1302, 1308-09 (2001); In re

Halliburton Co. , 80 S.W.3d 566, 570 (Tex. 2002). The advantages of the arbitration

process do not disappear in the employment arena. See id . Thus, arbitration

agreements in the employment context are valid, irrevocable, and enforceable, save

upon such grounds as exist in law or equity for the revocation of any contract. See

id.

In Halliburton , the Texas Supreme Court considered substantive

unconscionability to be one such potential ground. Id., 80 S.W.3d at 572 (“We

therefore clarify that courts may consider both procedural and substantive

unconscionability of an arbitration clause in evaluating the validity of an arbitration

provision.”). Under Texas law, “the basic test for unconscionability is whether, given

the parties’ general commercial background and the commercial needs of the

particular trade or case, the clause is so one-sided that it is unconscionable under the

circumstances existing when the parties made the contract.” FirstMerit Bank , 52

S.W.3d at 757 . This principle is designed to prevent unfair surprise and oppression,

not to disturb allocation of risks due to superior bargaining power. Id . Substantive

unconscionability refers to the fairness of the arbitration provision itself, as opposed

to procedural unconscionability, which refers to the circumstances surrounding the

adoption of the arbitration provision. See Halliburton , 80 S.W.3d at 571 . As stated

above, Luna had the burden to prove that the agreement’s provisions were

substantively unconscionable. See FirstMerit Bank , 52 S.W.3d at 756 .

A. Costs of Arbitration

Luna asserts that the arbitration agreement’s cost-allocation provisions are

substantively unconscionable because they require him to pay more than a nominal

fee for the arbitration. Specifically, the agreement in the employee handbook

provides:

All fees charged by the Mediator shall be divided equally between the

Parties. All fees associated with the Arbitration (including, but not

limited to, the Arbitrator’s fee, court reporter fees, and fees to secure a

place for the hearing, if any) shall be divided equally between the

Parties. However, the total fees incurred by Employee shall not exceed

the gross compensation earned by the Employee in Employee’s highest

earning month in the twelve months prior to the time the arbitrator

issues his award.

Luna estimated that his potential cost based on the foregoing provision could be as

much as $4,550.

The affidavit of Peter Costea, an experienced employment lawyer,

established that the average cost for an arbitration in Harris County in cases similar

to Luna’s would be more than $20,000. Luna stated in his affidavit that two attorneys

refused to take his case on a contingency basis due to the arbitration agreement, and

he also stated that he would be unable to afford the arbitration fees. Luna’s evidence

as to cost and his inability to pay was uncontroverted. Based on this evidence, Luna

argues that the cost was so prohibitive that the cost provision should have been found

substantively unconscionable.

Luna argues that the agreement’s cost provisions are substantively

unconscionable because, in Halliburton , the supreme court found that a cost

provision that imposed only a $50 fee on the employee was substantively

conscionable, whereas the fees assessed against Luna here are 91 times that amount.

See Halliburton , 80 S.W.3d at 572 . Luna’s argument employs the logical fallacy

known as “denying the antecedent.”

Applying that logical fallacy, Luna argues that

(1) under Halliburton , if a cost provision in an arbitration agreement requires an

employee to pay $50 (or less), it is conscionable; (2) Poly-America’s cost provision

required the employee to pay more than $50; (3) therefore, the provision was

unconscionable.

We agree with Poly-America’s contention that the Texas Supreme Court did

not intend to require every arbitration agreement to provide the same protection as the

arbitration agreement in Halliburton . In Halliburton , the Texas Supreme Court

reversed the trial court’s order denying an employer’s motion to compel arbitration.

See Halliburton , 80 S.W.3d at 573 . The court held that the agreement provided

employees with adequate protection for several reasons, one of which was that the

employer agreed to pay all of the arbitration expenses except for a $50 filing fee. See

id . at 572. The court cited Cole v. Burns International Security Services

as an

example of another court that had upheld an arbitration agreement with similar

provisions. See Halliburton , 80 S.W.3d at 572 . However, we do not think that, by

finding the cost provisions in Halliburton to be conscionable, the Texas Supreme

Court meant, by implication, that provisions imposing greater costs on the employee

were necessarily unconscionable. Indeed, in Texas, an arbitrator’s decision requiring

an employee to pay more than $50 in arbitration fees has been upheld. See, e.g. ,

Williams v. Cigna Fin. Advisors, Inc. , 197 F.3d 752, 763 (5th Cir. 1999) (upholding

arbitration panel’s decision requiring employee to pay half of all forum fees).

Luna argues that, based on the Halliburton court’s citation to Cole , we should

adopt the position set forth in Cole (and in some other federal court decisions) that

it is per se substantively unconscionable to impose anything more than a nominal fee

on a discharged employee for arbitration.

However, this position is in conflict with

the holding of Pony Express Courier Corp. v. Morris . In Pony Express , the

arbitration agreement between the employer and the employee contained a fee-sharing

provision. See id , 921 S.W.2d 817, 822 (Tex. App.—San Antonio 1996, no pet.).

That court asserted that equal cost- sharing is a standard feature of arbitration clauses.

See id . The court stated that a fee-splitting provision contained in an arbitration

agreement is not, by itself, unconscionable. See id .

However, the Pony Express court noted that it could not determine whether the

agreement as a whole was unconscionable because the parties did not provide

sufficient facts for the court to make that determination. See id . Here, the

uncontroverted testimony of Costea established that the arbitration will almost

certainly force Luna to pay the maximum capped amount to arbitrate his case. In

addition, Luna stated that he could not afford these arbitration fees, which amount to

more than one-half of his annual compensation.

Poly-America asserts that, under Texas law, the cost provision is not

unconscionable. Poly-America bases its argument on Pony Express and In re

FirstMerit Bank . However, we have already distinguished Pony Express from the

present case because the Pony Express court did not have sufficient facts before it to

determine whether the arbitration agreement could be substantively unconscionable

as a whole. See id. , 921 S.W.2d at 822 . FirstMerit Bank is also distinguishable. The

real parties in interest in FirstMerit Bank were complaining, in part, that the

arbitration filing fee was excessive. See id. , 52 S.W.3d at 756-57 . The court held that

it did not need to determine whether the costs of arbitration were excessive because

the arbitration addendum made no reference to the actual costs and there was no

evidence that the fees in question would be charged. See id. In this case, Costea’s

unrebutted affidavit showed the average costs of an arbitration in Harris County.

Poly-America also relies on two federal cases to support its argument that the

cost provisions are not unconscionable: Bloxom v. Landmark Publishing Corp. , 184

F. Supp.2d 578 (E.D. Tex. 2002), and Williams v. Cigna Financial Advisors, Inc. , 197

F.3d 752 (5th Cir. 1999). In Bloxom , the court held there was no evidence that the

costs would be prohibitive. See id. , 184 F. Supp. 2d at 585 (holding that the

plaintiff’s mere assertion that the costs were prohibitive was not sufficient to show

prohibitive cost). Here, there is unrebutted evidence of the average costs of

arbitration in the region.

In Williams , the Fifth Circuit Court of Appeals considered whether an

arbitrator’s order requiring that a discharged employee pay one-half of the arbitral

forum fees after the arbitration’s conclusion violated public policy. See id. , 197 F.3d

at 763 . The court held that the employee had to demonstrate that paying half of the

forum fees “prevented him from having a full opportunity to vindicate his claims

effectively or prevented the arbitration proceedings from affording him an adequate

substitute for a federal judicial forum.” Id . at 764. To meet that standard, the

employee needed to show that he was unable to pay one-half of the forum fees or that

it was prohibitively expensive for him to pay the fees, which he failed to show. See

id . at 764-65 (holding that, when appellant had already arbitrated his claims, paid part

of arbitration fees, and testified that his salary for the year was in excess of $100,000,

appellant failed to show prohibitive expense). However, the facts in Williams are

plainly distinguishable from the facts in this case. Luna’s evidence showed that he

would not be able to afford the arbitration fees and that he was having difficulty

obtaining an attorney due to the arbitration agreements.

Although, under Texas law, the Pony Express decision indicates that the cost

provisions here would not be unconscionable by themselves, the evidence that Luna

provided as to arbitration costs and his inability to pay them shows that, unlike the

employees in Pony Express or Williams , the cost provisions did place an oppressive

burden on Luna. Accordingly, when determining whether the arbitration agreement

as a whole was so one-sided as to render it substantively unconscionable, the costs

provision weighs heavily toward a finding of substantive unconscionability. See

Pony Express , 921 S.W.2d at 822 (implying that it is necessary to look at the

provisions of an agreement as a whole to determine whether it is substantively

unconscionable).

B. Limitation of Remedies

Luna asserts that the arbitration agreement’s prohibition of punitive damages

and reinstatement remedies is substantively unconscionable because those remedies

are allowed under the Texas Labor Code. See Tex. Lab. Code Ann. § 451.002

(Vernon 1996).

As a threshold matter, we note that Luna’s amended petition sought both

reinstatement and punitive damages, the latter based on allegations of actual malice

on the part of Poly-America. Section 451.002 provides for “reasonable damages

incurred by the employee as a result of the violation.” Id . The Texas Supreme Court

has recognized that the statute allows punitive damages only when the employee can

show that the employer displayed actual malice. Continental Coffee Prods. Co. v.

Cazarez , 937 S.W.2d 444, 454 (Tex. 1996).

Provisions prohibiting punitive damages in arbitration agreements are generally

enforceable. Investment Partners, L.P. v. Glamour Shots Licensing, Inc. , 298 F.3d

314 , 318 n.1 (5th Cir. 2002). In a gender-discrimination case against an employer,

a federal court applying Texas law has upheld an arbitration agreement that

prohibited punitive damages and severely limited the employee’s statutory right to

reinstatement. See Kinnebrew v. Gulf Ins. Co. , C.A. No. 3:94-CV-1517-R, 1994 WL

803508 , at *1 (N.D. Tex. Nov. 28, 1994) (denying employee’s claim that denial of

punitive damages and allowing reinstatement “only if money damages are insufficient

as a remedy” invalidated the arbitration agreement). However, the court in

Kinnebrew noted that the employee did not cite any case supporting her position that

she should not be forced to arbitrate because the remedies allowed under the

arbitration policy denied her substantive rights to which she would have been entitled

in a judicial forum. See id . at *2. Here, Luna cites several cases in support of his

contention that the limitation of remedies deprives him of rights that he could assert

in a judicial forum.

Luna again claims that Halliburton is determinative as to the provisions

limiting remedies. This contention is based on the same logical fallacy that Luna

employed in arguing that the cost provisions were necessarily unconscionable. In

Halliburton , the Texas Supreme Court held that the agreement in that case was not

substantively unconscionable, in part because all remedies available in court were

also available in arbitration, but the court did not hold that arbitration agreements can

never limit remedies. See id ., 80 S.W.3d at 572 .

As shown by Pony Express , Texas law does not require that all statutory

remedies be provided in arbitration proceedings. See id. , 921 S.W.2d at 822 . Under

the arbitration agreement, Luna would be entitled to reasonable damages as allowed

by the Texas Labor Code; however, the agreements prohibit reinstatement, which is

also available under the Code. See Tex. Lab. Code Ann. § 451.002. In addition,

under the arbitration agreement, Luna would be precluded from seeking punitive

damages based on proof of actual malice, a remedy that is allowed under the Code.

See id.

Although preclusion of statutory remedies may not always weigh toward a

finding that the provisions as a whole are substantively unconscionable, their

preclusion does so with regard to the statutory remedies at issue in this case because

Luna’s claim is one brought for alleged retaliation for filing a worker’s compensation

claim as part of the overall Worker’s Compensation Act. See Tex. Lab. Code Ann.

§§ 451.001-.003 (Vernon 1996 & Supp. 2004-2005 ). The Texas Supreme Court has

held that the legislative policy behind the Act dictates that its provisions be construed

in favor of the injured worker. See Kroger Co. v. Keng , 23 S.W.3d 347, 349 (Tex.

2000). In fact, to discourage employers from opting out of the system, the Legislature

expressly limited the defenses available to an employer opting out of the Act’s

provisions. See id. Such a policy heightens the scrutiny that should be afforded to

arbitration provisions that expressly limit statutory remedies afforded under the Act.

In particular, the Act expressly confers upon a prevailing plaintiff a right to

“reinstatement in the former position of employment,” and the arbitration agreement

at issue here expressly abrogates such a right. See Tex. Lab. Code Ann. §

451.002(b).

This is not a case in which the employer is a non-subscriber and the employee

made a voluntary pre-injury election to participate in a non-subscribing employer’s

benefit plan in lieu of exercising common-law remedies. See, e.g. , Lawrence v. CDB

Servs., Inc. , 44 S.W.3d 544, 545 (Tex. 2001). Rather, this is the kind of agreement

that “requires a prospective employee, as a condition to receipt or retention of

employment, to agree to limit the employer’s liability.” Id. at 550 (quoting Brito v.

Intex Aviation Servs., Inc. , 879 F. Supp. 650, 654 (N.D. Tex. 1995) ). The latter is

disfavored because it contravenes the worker’s compensation scheme. See id.

Moreover, it is undisputed in the record before us that Poly-America is a subscriber

under the Worker’s Compensation Act and thus a recipient of the benefits that the Act

affords employers. Having availed itself of the benefits of the Act on the one hand,

Poly-America seeks to enforce the arbitration agreement’s limits on the employee’s

right of reinstatement on the other hand. Unlike the plan elections offered by non-subscribers in Lawrence , a limitation by a subscribing employer strikes at the core of

the legislative policy concerns addressed by the Act.

Thus, preclusion of the two substantive statutory remedies here tends to weigh

toward a finding that the agreement’s provisions as a whole are substantively

unconscionable.

C. Shortening of the Statute of Limitations

Luna also asserts that the provision shortening the statute of limitations from

two years to one year is unconscionable. The provision states that “[t]he party

seeking to arbitrate a dispute must submit written notice of claim within the earlier

of one year or the time period prescribed by the statute or common law cause of

action under which the claim is brought.” Poly-America does not dispute that the

applicable statute of limitations for wrongful discharge would be two years under the

Labor Code. See Johnson & Johnson Medical, Inc. v. Sanchez , 924 S.W.2d 925, 927

(Tex. 1996).

The Texas Supreme Court has allowed the statute of limitations to be modified

in an arbitration agreement involving a claim of wrongful discharge. See EZ Pawn

Corp. v. Mancias , 934 S.W.2d 87, 89 (Tex. 1996) (acknowledging that parties’

arbitration agreement shortened statute of limitations to 180 days). Here, the

shortened limitations provision applies equally to both parties. Moreover, Luna filed

his claim within the one-year limit under the arbitration agreement, and thus the

provision as applied to these facts did not render the agreement unconscionable.

Under the circumstances of this case, this provision does not weigh in favor of

a finding that the arbitration agreement as a whole was substantively unconscionable.

D . Limitations on Discovery

Luna asserts that the discovery limitations contained in the arbitration

agreement are substantively unconscionable because they benefit only Poly-America.

Specifically, Luna points to the following provisions as unconscionable: (1) allowing

each side one deposition; (2) disallowing requests for admissions; (3) disallowing

discovery of Poly-America’s financial information; and (4) requiring confidentiality

on all aspects of arbitration. The agreement also allows each side to serve one set of

25 interrogatories and to serve one set of 25 requests for production, inspection of

documents, or tangible things. Both sides are also permitted to designate experts and

to issue subpoenas.

Luna concedes that all of the discovery limitations, with the exception of the

provision concerning financial information, apply equally to both Luna and Poly-America. Luna argues that these provisions are still unconscionable because they

were constructed to favor only Poly-America. Luna offered the affidavit of Costea

to show that the provisions regarding depositions, requests for admissions, and

confidentiality work exclusively to Poly-America’s advantage. Specifically, Costea

stated that, in a case such as this, on average, an employee will need to take three to

five depositions, while the employer will need to take only the deposition of the

complaining employee. Nevertheless, because Luna stated in his affidavit that David

Davenport was his supervisor and that Davenport was the representative of Poly-America who harassed him and terminated his employment, the trial court could have

concluded that Luna would not need to take more than the deposition of Davenport.

Luna cites four cases to support his argument that discovery limitations are

unconscionable, but each of those decisions is distinguishable from this case and

contrary to Texas law. In Ferguson v. Countrywide Credit Industries, Inc. , the

arbitration agreement limited the number of subjects that could be included in the

deposition of a corporate representative, but did not similarly limit the subjects

included in employee depositions. See id. , 298 F.3d 778, 786 (9th Cir. 2002). The

Ninth Circuit Court of Appeals held that the discovery provisions were not per se

unconscionable, but contributed to the overall pattern of unconscionability

throughout that agreement. Id . at 787. In this case, there is no such limitation of

deposition subjects in favor of Poly-America.

The arbitration agreement in Hooters of America, Inc. v. Phillips is

distinguishable because that agreement contained two discovery requirements for the

employee that did not apply to the employer, in addition to an arbitrator-selection

process that was biased in favor of the employer. See id. , 173 F.3d 933, 938-39 (4th

Cir. 1999). In Geiger v. Ryan’s Family Steak Houses, Inc. , the arbitration agreement

allowed one deposition per side as of right, but allowed additional depositions at the

discretion of a panel “stacked against the employee in the first place.” See id. , 134 F.

Supp. 2d 985, 996 (S.D. Ind. 2001). Here, there is no allegation that the selection of

arbitrators is one-sided. Similarly, the case that Luna cites for the proposition that the

confidentiality requirement unconscionably impedes discovery is not on point. See

Torrance v. Aames Funding Corp. , 242 F. Supp. 2d 862, 875 (D. Or. 2002). In that

case, the court found that the confidentiality agreement was unconscionable because

it involved consumer fraud, which is a public-interest problem. See id. (holding that

confidentiality provision affected so many persons that it would put lender in “vastly

superior legal posture”).

We thus hold that the discovery provisions in this case that applied equally to

both parties are not per se substantively unconscionable, especially when Texas law

permits discovery to be eliminated entirely in some arbitration agreements. See Pony

Express , 921 S.W.2d at 822 (asserting that discovery may be limited or eliminated in

some arbitration agreements).

We also disagree with Luna’s assertion that the provision allowing Poly-America limited access to Luna’s financial information, although completely denying

Luna any access to Poly-America’s financial records, is substantively unconscionable.

Luna argues that he will be unable to rebut “certain reasons for discharge” without

access to Poly-America’s financial condition. The arbitration agreements state that

“[f]inancial information about either party is not relevant and shall not be

discoverable, with the exception that information about employee’s earnings is

relevant and shall be discoverable if employee is seeking lost wages, back pay, and/or

front pay.” Plainly, the arbitration agreement puts the employer and employee on an

unequal footing. Luna, however, offered no evidence to demonstrate the specific

relevance of Poly-America’s financial condition to the discharge decision. Without

such a showing of relevance, we cannot determine the financial condition’s impact

in the overall agreement. Accordingly, under the circumstances of this case, the

provisions limiting discovery do not weigh toward a finding of overall substantive

unconscionability.

E. Alterations to Standard of Proof

Luna asserts that the arbitration agreement unconscionably prohibits the

arbitrator from considering whether Poly-America had a good reason for terminating

Luna. We disagree with Luna’s interpretation of the agreement.

The provision in question stated that “[t]he arbitrator shall not have the

authority to alter the parties’ at-will relationship or to apply a ‘just cause’ or ‘good

cause’ standard to claims relating to Employee’s claims concerning his employment

or separation therefrom.” The general rule in Texas is that “employment may be

terminated by the employer or the employee at will, for good cause, bad cause, or no

cause at all.” Montgomery County Hosp. Dist. v. Brown , 965 S.W.2d 501, 502 (Tex.

1998). Luna’s employment was at will. The provision in the arbitration agreement

simply prohibits the arbitrator from applying a “good cause” standard instead of

Texas’s traditional “at-will” standard to employment cases; the clause does not

prohibit the arbitrator from inquiring as to the reason for termination. Accordingly,

this provision does not weigh in favor of a finding of overall substantive

unconscionability.

F. Scope of Arbitration Agreement

Luna argues that the provision that equally binds both parties to arbitrate any

claims that they might have against each other in the future is substantively

unconscionable because he would have to arbitrate even those claims that may arise

in the future and that do not relate to his employment.

Luna contends that he could have claims that do not relate to his employment

in the future, such as a slander or a personal injury claim, and that it is

unconscionable that these claims be subject to the arbitration agreement. However,

the provision applies equally to Poly-America. If Luna were to trespass on Poly-America’s property, that claim against Luna would be subject to the arbitration

agreement even though it has nothing to do with Luna’s employment. Because both

parties are equally bound to arbitrate any future claims against each other, the

provision is not so one-sided that it is substantively unconscionable. See FirstMerit

Bank , 52 S.W.3d at 757 . Accordingly, this provision does not weigh toward an

overall finding of substantive unconscionability.

G. Unconscionability of Agreement as a Whole

Luna asserts that, even if none of the provisions in the agreement is

unconscionable by itself, the agreement as a whole is so unfair as to be

unconscionable.

Pony Express clearly indicates that it is appropriate to determine whether an

arbitration agreement is unconscionable as a whole, even if the individual provisions

considered in isolation are not substantively unconscionable. See id. , 921 S.W.2d at

822 (holding that trial court abused its discretion by determining unconscionability

without sufficient facts before trial court to determine if agreement was

unconscionable as a whole). Although we believe that Halliburton did not set out

specific requirements that must be met in every arbitration agreement, Halliburton

does provide guidance as to what terms are acceptable with regard to arbitration costs,

discovery, and remedy limitations. See id. , 80 S.W.3d at 572 . Halliburton upholds

an agreement that requires the employee to pay only a $50 filing fee, allows $2,500

for the employee to consult an attorney, allows the same discovery afforded under the

Federal Rules of Civil Procedure, and allows all remedies that could be pursued in

court. See id .

Although it is not necessary for Poly-America’s arbitration provisions to be

equivalent to the provisions approved of in Halliburton , Luna has shown with

unrebutted evidence that two of the provisions in Poly-America’s arbitration

agreement create a much heavier burden for him than those approved in Halliburton.

The provisions pertaining to arbitration costs and remedy limitations are particularly

burdensome when considering their combined effect. Luna is required to pay

arbitrator’s expenses equal to his highest month’s gross compensation for the 12

months prior to issuance of the arbitrator’s award. Luna showed that, given the

average cost of arbitrations in Harris County, he will very likely incur costs up to the

maximum. In addition to these costs, Luna will be precluded from reinstatement to

his former job and from collection of punitive damages, to both of which he may have

been entitled under the Texas Labor Code. See Cazarez , 937 S.W.2d at 454

(asserting that employee may be entitled to punitive damages when he can prove

actual malice); see also Tex. Lab. Code Ann. § 451.002(b).

Luna also presented some evidence that the agreement gears its discovery

provisions to favor Poly-America, in particular with regard to producing financial

information. Under these facts, however, Luna has not demonstrated that the

discovery limitations alone render the agreement unconscionable. As for the other

provisions, we have found that, under the circumstances of this case, they do not

weigh in favor of a finding of substantive unconscionability.

It is not the number of provisions weighing toward an overall finding of

substantive unconscionability that matters as much as the cumulative one-sidedness

of the burden that those provisions place on a party.

The United States Supreme Court has noted that, as long as the prospective

litigant can effectively vindicate his statutory cause of action in the arbitral forum, the

statute continues to serve its remedial and deterrent function. See Gilmer , 500 U.S.

at 28 , 111 S. Ct. at 1653 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth , 473 U.S. 614, 637 , 105 S. Ct. 3346, 3359 (1985)). Here, the high cost of

arbitration, combined with the limitation of damages and reinstatement in the

agreement, essentially deprive Luna of the opportunity to vindicate his claim

effectively in the arbitral forum under the Texas Labor Code. Such deprivation is not

consistent with the strong legislative policy behind the Worker’s Compensation Act.

See Kroger , 23 S.W.3d at 349-50 . Although Luna has not shown that any of the other

provisions is so one-sided in Poly-America’s favor as to be substantively

unconscionable, the one-sidedness of the cost and remedy provisions tend to render

the agreement as a whole unconscionable under the facts and circumstances of this

case.

Poly-America argues that Ferguson , the Ninth Circuit Court of Appeals case

on which Luna relies for his contention that the agreement should be considered as

a whole with regard to unconscionability, is not applicable to this case because it

applies a different standard for unconscionability. See id. , 298 F.3d at 784. However,

Poly-America fails to acknowledge, as Pony Express plainly recognizes, that Texas

courts must consider the arbitration agreement as a whole. See id. , 921 S.W.2d at

822 . As the Pony Express court also indicated, the fact that individual provisions

may not be unconscionable in certain circumstances does not mean that a particular

agreement cannot be unconscionable when considered as a whole. See id.

Accordingly, we hold that the arbitration costs imposed on Luna, who provided

evidence of the costs of arbitration and of his inability to pay, in addition to the

limitations on Luna’s opportunity to be reinstated and to recover punitive damages,

render the arbitration agreement, when considered as a whole, so one-sided in Poly-America’s favor and so oppressive to Luna as to be substantively unconscionable,

given the strong legislative policy behind the Worker’s Compensation Act.

Severability

Poly-America argues that, even if some of the arbitration provisions are found

to be unconscionable, they can be severed from the arbitration agreement, pursuant

to the severability clause contained in the agreement, so that the parties can still be

compelled to arbitrate. Poly-America relies on two Fifth Circuit Court of Appeals

cases for the proposition that unconscionable provisions can be severed from an

otherwise acceptable arbitration agreement. However, both of those cases are

distinguishable from this case. In Carter v. Countrywide Credit Industries, Inc . and

Jones v. Fujitsu Network Communications, Inc. , the court invalidated only the

provision in the agreements that required fee-splitting and ordered the parties to

arbitrate with the employers to pay all arbitration costs. See Carter , 189 F. Supp. 2d

606, 620 (N.D. Tex. 2002); Jones v. Fujitsu Network Communications, Inc. , 81 F.

Supp. 2d 688, 693 (N.D. Tex. 1999).

In this case, however, there is more than one provision that renders the

agreement unconscionable; both the arbitration costs and the remedy limitations

imposed on Luna cause the agreement to be unconscionable as a whole. When a

portion of an agreement to be severed is integral to the entire agreement, a

severability clause cannot save the agreement. Cf. John R. Ray & Sons, Inc. v.

Stroman , 923 S.W.2d 80, 87 (Tex. App.—Houston [14th Dist.] 1996, writ denied)

(holding that because “covenant not to compete” was integral to agreement, it could

not be severed from agreement). Because the purpose of arbitration is to afford the

parties an alternative forum in which to vindicate their claims, and because the cost

provisions and remedy limitations together deprive Luna of his opportunity to

vindicate his claim in the arbitral forum, we hold that those provisions are integral to

the purpose of the agreement and cannot be severed.

Accordingly, we hold that the trial court abused its discretion in granting Poly-America’s motion to compel arbitration. Because we have held that the arbitration

agreement is substantively unconscionable, it is unnecessary to address Luna’s

contention that the agreement should fail for lack of consideration.

Conclusion

We conditionally grant Luna’s petition for writ of mandamus. We are

confident that the trial court will comply with our holding. Accordingly, writ will

issue only if the trial court does not withdraw its order compelling arbitration.

Tim Taft

Justice

Panel consists of Justices Taft, Keyes, and Bland.