Peleg v. Neiman Marcus Group, Inc.
204 Cal. App. 4th 1425
| Cal. Ct. App. | 2012Background
- FAA governs arbitration; arbitration contract requires mutual promises to arbitrate; modification clause allows unilateral amendments with 30 days’ notice and applies to claims not yet filed with AAA; Texas choice-of-law clause and Texas/California law interplay on illusory contracts; Peleg alleges FEHA violations, anti-gay/religion/ethnicity discrimination; arbitration proceeding proceeded but Peleg sought to challenge enforceability; district court compelled arbitration and later Peleg challenged; appellate court held agreement illusory under Texas law and reversed arbitration orders.
- The arbitration agreement is a stand-alone document, with explicit Texas law and FAA governing; it contains a severability clause creating potential inconsistency about enforceability decision-maker; the dispute centers on whether modification rights render the contract illusory.
- Texas law requires savings clause to exempt accrued/known claims from contract changes; California law permits implied restrictions but is subordinate where conflict exists; the FAA uses state contract principles and may imply restrictions; the court ultimately found the Texas-law analysis controlling and the agreement illusory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration agreement is illusory under Texas law | Peleg (Tex. law) contends unilateral modification renders agreement illusory | Neiman Marcus argues no illusory effect under Kellogg/Champion/Nabors and Halliburton lines | Yes; agreement illusory under Texas law |
| Who decides enforceability of the arbitration clause—the court or the arbitrator | Enforceability should be judicial | Arbitrator should decide if clause unenforceable under delegation clause | Court decides enforceability; no clear delegation to arbitrator |
| Whether Texas law or FAA governs illusory-contract analysis given the choice-of-law clause | California forum should apply CA/FOC principles? | Texas law governs validity; choice-of-law clause controls | Texas law governs illusory analysis; FAA analysis aligned with Texas law; California policy not controlling |
| Effect of 30-day notice on protections for accrued/known claims | Notice alone cannot save illusory contract; accrued/known claims must be exempt | Notice provision is permissible; savings clause not required by FAA | Modification must exempt accrued/known claims; here not sufficiently protected; contract illusory |
Key Cases Cited
- Halliburton Co. v. Myers, 80 S.W.3d 566 (Tex. 2002) (established that arbitration programs may be enforceable if changes are prospective and not retroactive to accrued disputes)
- In re Kellogg Brown & Root, 80 S.W.3d 611 (Tex.Ct.App. 2002) (held unilateral modification can be enforceable if disputes pending excluded by saving clause)
- In re Champion Technologies, Inc., 222 S.W.3d 127 (Tex.Ct.App. 2006) (upheld enforceability with notice, 30-day window; similar to Halliburton)
- Nabors Drilling USA, LP v. Carpenter, 198 S.W.3d 240 (Tex.Ct.App. 2006) (arbitration enforceable with limitations on retroactive changes)
- Odyssey Healthcare, 310 S.W.3d 419 (Tex. 2010) (modification clauses with prospective limits preserve enforceability when claims accrued prior to change)
- Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202 (5th Cir. 2012) (unrestricted unilateral modification renders arbitration illusory absent savings clause)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 130 S. Ct. 2772 (2010) (delegation of arbitrability to arbitrator; gateway issues require clear delegation)
- Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008) (held in context of stand-alone program or embedded clause, modification can render illusory without savings clause)
- 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199 (Cal. Ct. App. 1998) (California: modification with good-faith constraint; savings clause may save contract)