Peleg v. Neiman Marcus Group, Inc.

ROTHSCHILD, J., Dissenting.—

I respectfully dissent. The parties’ arbitration agreement provides that the agreement shall be construed, governed by, and enforced in accordance with Texas law. Under Texas law, the agreement is enforceable and not illusory. (In re Champion Technologies, Inc. (Tex.Ct.App. 2006) 222 S.W.3d 127, 132 ; Nabors Drilling USA, LP v. Carpenter (Tex.Ct.App. 2006) 198 S.W.3d 240, 248-249 (Nabors Drilling); *1468 In re Kellogg Brown & Root (Tex.Ct.App. 2002) 80 S.W.3d 611, 616 .) We should therefore affirm the judgment.

As the majority correctly observes, the threshold issue in this case is whether a court rather than an arbitrator should determine the enforceability of the arbitration agreement. The parties did not brief Texas law on that issue, and the majority applies California law instead, concluding that the issue should be determined by a court because the parties’ agreement does not clearly and unmistakably provide that enforceability questions are to be decided by an arbitrator. On the merits of the enforceability issue, the majority concludes that the agreement is illusory and unenforceable under Texas law.

Assuming for the sake of argument that we should apply California law rather than Texas law in deciding the threshold issue of whether a court or an arbitrator should determine enforceability, and assuming for the sake of argument that under California law a court should determine it, the majority’s conclusion on the enforceability issue is still incorrect as a matter of Texas law. Under Texas law, the agreement is not illusory.

In In re Kellogg Brown & Root, the Court of Appeals of Texas considered an arbitration agreement that could be unilaterally modified or terminated upon 10 days’ notice but under which “the amendment or termination will not apply to any dispute for which a proceeding has been initiated . . . .” (In re Kellogg Brown & Root, supra, 80 S.W.3d at p. 614 .) The court held that the agreement was “binding and enforceable.” (Id. at p. 616.) That case is not distinguishable from the case before us, and no Texas case holds to the contrary.

In re Kellogg Brown & Root was decided the month before the Supreme Court of Texas decided In re Halliburton Co. (Tex. 2002) 80 S.W.3d 566 (Halliburton). Halliburton addressed an employment arbitration agreement that allowed the employer unilaterally to amend (apparently without notice) or terminate upon 10 days’ notice; amendments would not apply to disputes of which the employer had actual notice on the date of the amendment, and disputes that arose before the date of termination would be governed by the pretermination arbitration agreement. (Id. at pp. 569-570.) The court held that the agreement was not illusory, because the employer could not “avoid its promise to arbitrate by amending the provision or terminating it altogether.” (Id. at p. 570.) The court never stated or implied that the agreement’s restrictions on modification and termination were the absolute minimum necessary for an agreement to be nonillusory, so the case casts no doubt on the continuing validity of In re Kellogg Brown & Root.

*1469 Two later opinions of the Court of Appeals of Texas applying Halliburton have reached the same conclusion as In re Kellogg Brown & Root. In re Champion Technologies, Inc., dealt with an arbitration agreement that could be unilaterally amended or terminated by the employer upon 30 days’ notice but under which the amendment or termination would not apply to proceedings that had already been initiated. (In re Champion Technologies, Inc., supra, 222 S.W.3d at p. 131 .) Applying Halliburton, the court concluded that the agreement was enforceable and not illusory. (Id. at pp. 131-132.) Nabors Drilling dealt with an arbitration agreement that could be unilaterally amended or terminated by the employer upon 10 days’ notice but under which the amendment or termination would not apply to proceedings that had already been initiated. (Nabors Drilling, supra, 198 S.W.3d at p. 248, fn. 7 .) Applying Halliburton, the court concluded that the agreement was enforceable and not illusory. (Id. at pp. 248-249.)

We are not free to disregard In re Kellogg Brown & Root, In re Champion Technologies, Inc., and Nabors Drilling. They are not merely persuasive authority concerning the contours of Texas law—they are Texas law. They have not received any negative treatment in any published opinions of Texas’s appellate courts. Accordingly, a Texas legal treatise presents their holding as an uncontroversial principle of Texas law: “An employer’s ability to amend or terminate an arbitration agreement does not make the agreement illusory and unenforceable, when the employer is required to give notice to its employees of any amendment or termination, but any amendment or termination is inapplicable to pending arbitration proceedings . . . .” (13 Dorsaneo, Texas Litigation Guide (Matthew Bender 2012) § 203.48[3], p. 203-90 (rel. 104-3/2012).)

In re Kellogg Brown & Root, In re Champion Technologies, Inc., and Nabors Drilling are not “inconsistent with Halliburton and its progeny.” (Maj. opn., ante, at p. 1460.) The majority bases its contrary conclusion on its assertion that “[ujnder Texas law, all claims that have accrued or of which the employer has knowledge must be protected from contract changes” in order for the arbitration contract to be nonillusory. (Maj. opn., ante, at p. 1457.) That assertion is incorrect, because there is no authority for it in Texas law. In re Kellogg Brown & Root, In re Champion Technologies, Inc., and Nabors Drilling are in no way inconsistent with any of the Texas or federal cases on which the majority relies.

The central issue can be summarized as follows: Three published opinions of the Court of Appeals of Texas have addressed challenges to arbitration agreements that could be unilaterally amended or terminated by the employer upon 10 to 30 days’ notice but under which the amendment or termination would not apply to proceedings that had already been initiated. All three cases held that the agreements were not illusory.

*1470 There are two possible ways in which a conflict could arise in Texas law on that point. On the one hand, a published case decided under Texas law and involving the same kind of arbitration agreement—that is, an agreement that could be unilaterally amended or terminated by the employer upon at least 10 days’ notice but under which the amendment or termination would not apply to proceedings that had already been initiated—could hold or state in dicta that the agreement is illusory. But there is no such case. On the other hand, a published case decided under Texas law could hold or state in dicta that a more generous savings clause—such as one prohibiting application of an amendment or termination to all claims, filed or unfiled, arising out of events that took place before the amendment or termination—is the minimum necessary to prevent an arbitration agreement from being illusory. But again, there is no such case. I conclude that there is no conflict in Texas law and that we are consequently bound by In re Kellogg Brown & Root, In re Champion Technologies, Inc., and Nabors Drilling.

Because the arbitration agreement in this case is enforceable and not illusory under Texas law, the judgment should be affirmed. I therefore respectfully dissent.