Arbitration: Texas Appeals Panel Issues Mandamus Reversing Lower Court in Employment (Web)

In Nabors v. Carpenter, Nos. 04-05-00842-CV, 04-05-00933-CV, 2006 WL 708275 (Texas Ct. App.-San Antonio March 22, 2006)(available at: http://www.4thcoa.courts.state.tx.us/opinions/HTMLopinion.asp?OpinionID=19060), the Texas Appeals Court held that it had to compel arbitration where a case’s claims were within the scope of an arbitration agreement and the claimed defenses to enforcing the agreement failed. The court issued mandamus relief, forcing the trial court to compel arbitration in an employment case.

According to a unanimous appeals panel, trial court erred because a valid arbitration agreement covered the original employment discrimination claims by plaintiff Jimmy Carpenter.
Carpenter was a former employee of the defendant Nabors Drilling, which was the appellant in the current case.

Carpenter received “Nabors Dispute Resolution Program and Rules" when he was hired. The document established a procedure, including arbitration, for resolving employment-related disputes.

In March 2005, Carpenter left his job and he sued Nabors, and two other employees alleging that he was forced to resign. The defendants compelled arbitration of all claims, referring to the copy of the program, and Carpenter's signed acknowledgment.

Carpenter responded that the Resolution Program was unenforceable due to (1) a failure of consideration; (2) a lack of clarity as to whether the parties agreed to mediation or arbitration; and (3) his signed acknowledgment's failure to indicate if arbitration or mediation was binding.

A nonevidentiary hearing followed in the trial court. Nabors argued that there was a valid arbitration agreement and that Carpenter's claims fell within the scope of the agreement.

Carpenter did not deny Nabors' argument. Instead, he came up with a number of other arguments. He reasoned that Nabors "failed to meet its initial burden of presenting an arbitration agreement.” He also said the arbitration agreement was illusory and unenforceable because Nabors could terminate or modify it with 10 days’ notice. In addition, Carpenter claimed the agreement was ambiguous because it called for both mediation and arbitration.

The trial court rejected Carpenter's first two arguments. But it also denied the motion to compel arbitration because the “‘Resolution Program’ did not call for ‘binding’ arbitration.”

The trial court didn’t state whether the arbitration agreement was governed by the Federal Arbitration Act or the Texas Arbitration Act. As a result, the appellants, which included two of Nabors’ employees, sought relief from the trial court's order denying arbitration both by mandamus and interlocutory appeal.

The appeals court opinion notes that if the Texas law applies, the panel would be reviewing an interlocutory order, while if the order was FAA-based, it would be reviewed by mandamus. The reviewer standards differ.

The panel held that mandamus is the proper mechanism, since the case invoked interstate commerce--Nabors is a Delaware limited partnership with operations in several states--making the FAA apply. The panel also noted that the Resolution Program expressly refers to the FAA.

But mandamus–in this case, an order from a court compelling a lower court to take action–only applies if a clear abuse of discretion has to be corrected, for which an appeal is not adequate.

For a party to seek to compel arbitration by a writ of mandamus, it must establish the existence of a valid agreement to arbitrate under the FAA and show that the disputed claims fall within the scope of the agreement.

According to Carpenter, the mandamus relief should be denied since Nabors failed to “verify” the Resolution Program and Carpenter's acknowledgment.

The appellate panel concluded that Carpenter's disputes must be arbitrated, unless the parties agreed to mediation and notified the designated organization in a timely manner. Also, Carpenter's acknowledgment, which includes a reference to mediation, does not alter the clarity of the Resolution Program. So the trial court erred in not enforcing arbitration on the ground the Resolution Program failed to call for "binding" arbitration.

The panel also dealt with and dismissed the plaintiff’s claim that there was no consideration on his part, as well as a new-on-appeal argument that there were disputed fact questions.

The trial court was directed to vacate the order denying arbitration and enter an order compelling it.

--Prepared by: Zoltan Elek CPR Intern