Jorge Lizalde v. Vista Quality Markets
746 F.3d 222
| 5th Cir. | 2014Background
- Lizalde, Vista Quality Markets’ meat-cutter employee, signed an Arbitration Agreement and participates in Vista’s Benefit Plan.
- Arbitration Agreement allows Vista to terminate prospectively, but termination is not effective for claims accrued before termination and requires 10 days’ notice to the employee.
- Benefit Plan may be terminated unilaterally by Vista via notice, with an unconstrained power to terminate the plan.
- Lizalde acknowledged receipt and review of both the Arbitration Agreement and the Benefit Plan upon employment.
- Lizalde sued in Texas state court for negligence and ERISA claim; Vista removed the ERISA claim to federal court; district court denied Vista’s motion to compel arbitration, finding the Arbitration Agreement illusory.
- The district court tied the illusory finding to treating the Benefit Plan and Arbitration Agreement as a single contract, applying the Benefit Plan’s termination to the Arbitration Agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Arbitration Agreement illusory under Texas law? | Arbitration can be terminated unilaterally without adequate constraints, rendering it illusory. | Termination is constrained (prospective only, for new claims, with notice); not illusory. | Not illusory; termination power is constrained. |
| If the Benefit Plan and Arbitration Agreement are read as a single contract, does the Benefit Plan termination provision apply to the Arbitration Agreement? | Yes, thus making the Arbitration Agreement illusory. | No; the provisions are separate in scope and applying the Plan’s termination to the Agreement would render the Agreement’s clause superfluous. | Assuming a single contract, the Benefit Plan termination does not apply to the Arbitration Agreement. |
| Do Texas contract principles govern or is the standard different here, and what is the standard of review? | Texas law controls the analysis of contract formation for arbitration. | Texas contract principles govern; review is de novo. | Texas law governs; decision reviewed de novo. |
Key Cases Cited
- In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010) (mutual arbitration consideration; illusory when unilateral termination unrestrained)
- In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002) (limits on termination power for enforceability; advance notice required)
- Frost Nat. Bank v. L&F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005) (ascertaining parties’ intentions in contract construction)
- J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (avoidance of superfluous contract terms; harmonizing provisions)
- Richland Plantation Co. v. Justiss-Mears Oil Co., Inc., 671 F.2d 154 (5th Cir. 1982) (when multiple documents represent one agreement, interpret to discern intent)
- Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008) (state contract principles govern formation of arbitration agreements)
- Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir. 2002) (de novo review for grant or denial of motion to compel arbitration)