in Re Pisces Foods, L.L.C. D/B/A Wendy's Restaurants and/or D/B/A Wendy's Old Fashioned Hamburgers Restaurant

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-06-00274-CV

In re Pisces Foods, L.L.C. d/b/a Wendy's Restaurants and/or d/b/a Wendy's Old Fashioned

Hamburgers Restaurant Number 17

ORIGINAL PROCEEDING FROM TRAVIS COUNTY

O P I N I O N

Relator Pisces Foods, L.L.C., d/b/a Wendy's Restaurants and/or Wendy's Old

Fashioned Hamburgers Restaurant Number 17, seeks a writ of mandamus ordering the trial court to

compel arbitration of a personal injury claim brought by a former employee. We find no abuse of

discretion in the denial of the motion to compel and deny the petition.

Carmen Jimenez worked at relator's restaurant. She alleges that she was injured

when a drawer at the restaurant fell on her while she was working. She sued relator on theories of

negligence and premises liability. Relator filed a motion to abate and refer the case to arbitration.

At the hearing on the motion, the trial court excluded evidence of the arbitration agreement (1) and

declined to either abate the case or refer it to arbitration. Relator then filed this petition for writ of

mandamus.

We review the refusal to compel arbitration under the Federal Arbitration Act by

writ of mandamus using an abuse of discretion standard. Jack B. Anglin Co. v. Tipps , 842 S.W.2d

266, 272-73 (Tex.1992). A trial court abuses its discretion if it erroneously applies the law to the

facts, or if it errs in determining the law. In re Bruce Terminix Co. , 988 S.W.2d 702, 703 (Tex.

1998) (orig. proceeding).

A party seeking arbitration must establish its right to arbitration under a contract.

Weekley Homes, Inc. v. Jennings , 936 S.W.2d 16, 18 (Tex. App.--San Antonio 1996, writ denied)

( Weekley I). Under the Federal Arbitration Act, "upon being satisfied that the making of the

agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an

order directing the parties to proceed to arbitration in accordance with the terms of the agreement."

9 U.S.C.A. § 4 (1999); see Cantella & Co., Inc. v. Goodwin , 924 S.W.2d 943, 944 (Tex. 1996) (once

party seeking to compel arbitration establishes that agreement exists under the FAA and that claims

are within agreement's scope, trial court must compel arbitration and stay its proceedings).

Relator has a dispute resolution program that seeks to resolve employee complaints

and avoid litigation of such complaints. (2) The Speak Out Program Highlights pamphlet attached to

Phil Stanton's affidavit outlines a four-step program. The steps are: (1) talking about problems one-on-one with a store manager, (2) formal review by the corporate human resources department,

(3) mediation, and (4) final and binding arbitration. The Highlights pamphlet expressly states, "Each

Step must be followed in sequence so that we have every opportunity to work together toward an

agreeable resolution of the issue." The sequential nature of the program is emphasized in the

arbitration paragraph, which begins as follows: "If you have a work-related problem that involves

a legally protected right that could not be settled through Steps 1, 2 or 3 of the Program, you may

request arbitration." The Highlights pamphlet also states that the program is "a mandatory condition

of your employment, which you accept and agree to by becoming employed or continuing your

employment with the Company at any time on or after March 1, 2002. The Company is also

mutually bound to use this program for any covered claim."

Even if we consider the excluded affidavit and assume without deciding that Jimenez

agreed to the program and that her claims are within the agreement, relator has not shown itself

entitled to arbitration. According to relator's own literature, mediation must occur and fail before

arbitration is an option under the company's mandatory program. Relator concedes that no

mediation occurred. Accordingly, relator failed to prove itself entitled to arbitration.

Relator argues that the failure to request mediation did not waive its right to

arbitration, citing In re Weekley Homes , 985 S.W.2d 111, 114 (Tex. App.--San Antonio 1998,

orig. proceeding) ( Weekley II). The parties in the Weekley cases had an agreement that permitted

the parties to request arbitration only after participating in mediation. The trial court denied a motion

to compel arbitration because the parties had not mediated. Weekley I, 936 S.W.2d at 17 . The court

of appeals affirmed, finding that mediation was a necessary precondition to arbitration under the

terms of the parties' contract. Id . at 18-19. The parties then went to mediation, which failed.

Weekley II, 985 S.W.2d at 113 . When the relator again sought to compel arbitration, the trial court

denied the motion after concluding that the relator had waived the right to arbitrate by filing its first

motion to compel arbitration before mediating the case. Id . The court of appeals found that denial

to be an abuse of discretion because the arbitration agreement did not expressly provide that

requesting arbitration before mediation waived any right a party had to arbitrate, and nothing about

the relator's behavior indicated that it intended to waive its right to arbitrate. Id . at 114. The

San Antonio court also wrote that the question of whether a party has followed the procedures

necessary to invoke an arbitration clause is ordinarily left to the arbitrator. Id . (citing John Wiley &

Sons, Inc. v. Livingston , 376 U.S. 543, 557 (1964)).

This latter reasoning bears closer scrutiny with respect to the particular facts of this

case. The Supreme Court in John Wiley distinguished between concepts of substantive arbitrability

and procedural arbitrability, but noted that cases would rarely present issues that were plainly one

or the other. 376 U.S. at 556-57 . The court defined substantive issues as those relating to whether

the subject matter of the dispute was within an arbitration agreement and procedural issues as those

relating to whether the procedures for invoking and using arbitration were met. Id . at 557.

Generally, substantive issues are to be decided by courts and procedural issues are to be submitted

as part of the arbitration. Id . at 557-58. The John Wiley court held that the issues concerning

fulfillment of arbitration prerequisites blended substance and procedure and should be resolved by

the arbitrator. Id . at 557. In that case, the union argued that Wiley's consistent refusal to recognize

the union's representative status made following the grievance steps under the contract utterly futile

and a bit ridiculous. The union also argued that time limits in the grievance procedure were not

dispositive because the violations of the bargaining agreement were continuing. These arguments

were inseparable from the disputes underlying the validity of the agreement. Id .

Courts nevertheless have held that issues related to the meeting of conditions

precedent to arbitration--including time limits, notice, and laches--are procedural arbitrability

issues. See Howsam v. Dean Witter Reynolds , 537 U.S. 79, 84-86 (2002). In concluding that a

National Association of Securities Dealers arbitrator should determine whether the parties had met

NASD requirements for requesting arbitration, the Supreme Court deemed such issues as

"presumptively for the arbitrator, not for the judge." Id . at 85. The Tyler court of appeals held that

a trial court abused its discretion by failing to compel arbitration despite an allegation that the party

requesting arbitration failed to satisfy the precondition that it participate in mediation. In re R & R

Personnel Specialists of Tyler, Inc. , 146 S.W.3d 699, 704 (Tex. App.--Tyler 2004,

orig. proceeding). The court held that compliance with a mediation precondition was a procedural

arbitrability issue that should be resolved by an arbitrator. Id .

Some courts have noted an exception to this bright-line distinction. In John Wiley ,

the Supreme Court wrote that doubts about whether preconditions have been met "cannot ordinarily

be answered without consideration of the merits of the dispute which is presented for arbitration."

376 U.S. at 557 (emphasis added). The Court wrote:

Once it is determined, as we have, that the parties are obligated to submit the subject

matter of a dispute to arbitration, "procedural" questions which grow out of the

dispute and bear on its final disposition should be left to the arbitrator. Even under

a contrary rule, a court could deny arbitration only if it could confidently be said not

only that a claim was strictly "procedural," and therefore within the purview of the

court, but also that it should operate to bar arbitration altogether, and not merely limit

or qualify an arbitral award.

Id . The Fifth Circuit derived from this language a narrow exception to the general rule that

arbitrators decide questions of procedural arbitrability, applicable when those issues are essentially

undisputed factually. General Warehousemen & Helpers Union Local 767 v. Albertson's

Distribution, Inc. , 331 F.3d 485, 488 (5th Cir. 2003). The Fifth Circuit wrote:

We have interpreted this rare exception to mean that "a court will not order

arbitration if 'no rational mind' could question that the parties intended for a

procedural provision to preclude arbitration and that the breach of the procedural

requirement was clear." [ Oil, Chem. & Atomic Worker's Int'l Union, Local 4-447

v. Chevron Chem. Co. , 815 F.2d 338, 342 (5th Cir. 1987)] (quoting Rochester Tel.

Corp. v. Communication Workers of Am. , 340 F.2d 237, 239 (2d Cir. 1965)).

Warehousemen , 331 F.3d at 488 . The Dallas court of appeals similarly noted the possibility of an

exception. Discussing procedural arbitrability, that court wrote: "Such procedural questions include

whether any contractually-based prerequisites to arbitration have been satisfied, at least when such

issues are intertwined with the underlying facts of the dispute." American Realty Trust, Inc. v. JDN

Real Estate-McKinney, L.P. , 74 S.W.3d 527, 531 (Tex. App.--Dallas 2002, pet. denied) (citing

Del E. Webb Constr. v. Richardson Hosp. Auth. , 823 F.2d 145 , 149 (5th Cir.1987)). These courts

did not use the exception because each of them faced disputed facts concerning the procedural

arbitrability issues. See John Wiley , 376 U.S. at 557-58 ; Warehousemen , 331 F.3d at 488-490 ;

American Realty , 74 S.W.3d at 532 ; see also Weekley II, 985 S.W.2d at 114 .

Other courts have upheld decisions that arbitration could not be compelled when

parties who were contractually required to mediate or follow other grievance procedures as a

precondition to arbitration had failed to do so. HIM Portland, LLC v. Devito Builders, Inc. ,

317 F.3d 41, 44 (1st Cir. 2003); Kemiron Atl., Inc. v. Aguakem Int'l, Inc. , 290 F.3d 1287, 1290-91

(11th Cir. 2002); Allen v. Apollo Group, Inc. , No. Civ. A. H-04-3041, 2004 U.S. Dist. LEXIS 26750 ,

at *27 (S.D. Tex. Nov. 9, 2004). But see Guam v. Pacificare Health Ins. Co. of Micronesia , Inc.,

2004 Guam 17 , 2004 Guam LEXIS, 18 at *40 n.7 (Guam 2004) (distinguishing HIM because it "did

not address the issue of whether the court or the arbitrators should decide whether a condition

precedent to arbitration was satisfied"). These courts reasoned that because the parties contractually

agreed to mediate before arbitrating, compelling arbitration in the absence of mediation would thwart

the parties' original intention. As the Eleventh Circuit wrote:

The FAA's policy in favor of arbitration does not operate without regard to the

wishes of the contracting parties. Here, the parties agreed to conditions precedent

before arbitration can take place and, by placing those conditions in the contract, the

parties clearly intended to make arbitration a dispute resolution mechanism of last

resort.

Kemiron , 290 F.3d at 1290 . The courts held that the parties' failure to conduct the required

mediation meant that the arbitration clause was not invoked. HIM , 317 F.3d at 44 ; Kemiron ,

290 F.3d at 1291 ("Because neither party requested mediation, the arbitration provision has not been

activated and the FAA does not apply.") Without addressing the procedural arbitrability line of

cases, these courts treat the precursor mediation as a contract compliance issue rather than an

arbitration procedural issue.

As presented in this petition, there is no question of fact with respect to the mediation

prerequisite. The agreement expressly requires mediation as a precondition for requesting

arbitration. The agreement binds relator. There is no allegation or proof that either party requested

mediation, that they held a mediation, or that Jimenez resisted participating in mediation. Relator

has failed to comply with the terms of its contract with Jimenez setting up preconditions for

arbitration. Under either the Warehouseman or the HIM / Kemiron theories, the arbitration clause has

not been triggered. See Warehousemen , 331 F.3d at 488 ; HIM , 317 F.3d at 44 ; Kemiron ,

290 F.3d at 1291 . We do not express any opinion regarding whether relator has waived the right to

arbitrate upon satisfaction of the preconditions, only that the right to compel arbitration has not yet

accrued under the terms of the contract. Nor do we express any opinion regarding whether this

lawsuit should continue in the trial court despite the fact that an alternative dispute resolution and

arbitration agreement exists (whether enforceable or not), but Jimenez has not complied with it and

the relator has not properly invoked it. On the undisputed record presented here, the trial court did

not abuse its discretion by refusing to compel arbitration.

The petition for writ of mandamus is denied.

G. Alan Waldrop, Justice

Before Justices Patterson, Pemberton and Waldrop

Filed: May 24, 2007

1. Relator contends that the court abused its discretion by excluding Pisces Vice President of

Operations Phil Stanton's affidavit and its attachments that set out the terms of the dispute resolution

program. For purposes of this opinion, we will consider the affidavit and its attachments as if they

were admitted.

2. Jimenez contends that she did not agree to be bound by the program and that forcing her

participation would be unconscionable. We need not reach these assertions.