Carey v. 24 Hour Fitness, USA, Inc.
669 F.3d 202
| 5th Cir. | 2012Background
- Carey, former 24 Hour Fitness salesperson, signed an arbitration-heavy Handbook with a Change-in-Terms Clause.
- Handbook arbitration provision covered FLSA disputes and barred class/representative actions, under FAA.
- Acknowledgment confirms receipt and acceptance of arbitration terms, while reserving 24 Hour Fitness's right to revise the Handbook.
- Carey sued post-employment for overtime under FLSA; district court ruled the arbitration clause illusory due to unilateral modification power.
- 24 Hour Fitness appealed, seeking to stay proceedings and compel arbitration; district court denied.
- Court affirms district court, holding the arbitration agreement illusory under Texas law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is illusory due to unilateral modification | Carey argues the Change-in-Terms Clause allows retroactive changes. | 24 Hour Fitness contends notice/acceptance prevent illusoriness. | Yes; illusory. Retroactive modification capability invalidates arbitration. |
| Role of notice and acceptance in curing illusoriness | Notice/acceptance insufficient to cure illusory nature. | Notice alone could bind changes if accepted; not enough to ensure non-illusory. | No; notice/acceptance do not cure illusory effect without a savings clause. |
| Impact of Halliburton savings clause on validity | Halliburton-type savings clause would prevent retroactive effect. | No such savings clause here; policy may still retroactively bind. | Halliburton savings clause required; absence supports illusory finding. |
| Effect of retroactive amendments on ongoing disputes | Amendments could render ongoing disputes arbitrable or not. | Amendments might not affect disputes already underway. | Retroactive amendments render arbitration illusory. |
Key Cases Cited
- Morrison v. Amway Corp., 517 F.3d 248 (5th Cir.2008) (contractual arbitration governed by Texas law; retroactive changes undermine validity)
- Halliburton Co., 80 S.W.3d 566 (Tex.2002) (savings clause preserves arbitration rights for disputes pre-change)
- In re 24R, Inc., 324 S.W.3d 564 (Tex.2010) (illusory if employer can retroactively avoid arbitration)
- Torres v. S.G.E. Mgmt., LLC, 397 F.App’x 63 (5th Cir.2010) (retroactive amendments without a savings clause can be illusory)
- Odyssey Healthcare, Inc., 310 S.W.3d 419 (Tex.2010) (arbitration clause not illusory where savings/notice addressed)
- Weekley Homes, LP v. Rao, 336 S.W.3d 413 (Tex.App.—Dallas 2011) (notice alone not sufficient; continued employment creates acceptance; illusory risk)
- Dillard Dept. Stores, Inc., 198 S.W.3d 778 (Tex.2006) (no express reservation of amendment right; distinguishable)
- Morrison v. Amway Corp., (see above) (5th Cir.2008) (reiterated illusory analysis under Texas law)