In Re Poly-America, L.P.
Full Opinion (html_with_citations)
the opinion of the Court,
In this retaliatory-discharge case, the employeeâs employment contract contains an arbitration agreement that requires the employee to split arbitration costs up to a capped amount, limits discovery, eliminates punitive damages and reinstatement remedies available under the Workersâ Compensation Act, and imposes other conditions on the arbitration process. We must decide whether any or all of these provisions are unconscionable and, if they are, whether the contractâs severability clause preserves the arbitration right. We hold that the trial court did not abuse its discretion in allowing the arbitrator to assess the unconscionability of the agreementâs fee-splitting and discovery-limitation provisions as applied in the course of arbitration. We further hold that the arbitration agreementâs provisions precluding remedies under the Workersâ Compensation Act are substantively unconscionable and void under Texas law. However, those provisions are not integral to the partiesâ overall intended purpose to arbitrate their disputes and, pursuant to the agreementâs severability clause, are sever-able from the remainder of the arbitration agreement, which we conclude is otherwise enforceable. Accordingly, we conditionally grant the petition for mandamus.
I. Facts
Johnny Luna began his employment with Pol-Tex International, d/b/a Poly-America, L.P., in October 1998. Upon his hiring, Luna signed an agreement to submit âall claims or disputesâ to arbitration. Approximately four years later, Luna signed an amended agreement to arbitrate that contained substantially the same provisions. Both the 1998 and 2002 agreements provide that they are governed by the Federal Arbitration Act (FAA). 9 U.S.C. §§ 1-14. Additionally, both agreements contain a series of requirements for the arbitration between the parties. All claims must be asserted within a maximum of one year from the occurrence of the event from which the claim arises. Fees associated with arbitration â including but not limited to mediation fees, the arbitratorsâ fees, court reporter fees, and fees to secure a place for a hearing â are to be split between the parties, with the employeeâs share capped at âthe gross compensation earned by the Employee in Employeeâs highest earning month in the twelve months prior to the time the arbitrator issues his award.â Each side is permitted limited forms of discovery: twenty-five interrogatories (including sub-parts), twenty-five requests for production or inspection of documents or tangible things, and one oral deposition of no more than six hours. Parties may not use written depositions or requests for admission; the agreement prohibits discovery of either partyâs financial information except for the employeeâs earnings if the employee seeks lost wages, back pay, and/or front pay; and all aspects of the arbitration are deemed confidential. Finally, the arbitrator is stripped of authority to award punitive, exemplary, or liquidated damages, or to order reinstatement of employment.
In December 2002, Luna suffered a work-related neck injury when he accidentally hit his head on a pipe. Poly-Americaâs company doctor examined Luna and diagnosed him with an acute cervical spine flexion injury. Luna subsequently filed a workersâ compensation claim and began receiving physical therapy. Approximately two weeks later, Luna returned to work on a release for light duty; however, Luna continued to suffer pain and utilized previously scheduled vacation time to recover from his injury. After being warned by the company doctor that he needed to return to work and get off of workersâ compensation if he wanted to keep his job,
Luna filed this suit asserting claims for unlawful retaliatory discharge under section 451.001 of the Labor Code (âthe Workersâ Compensation Actâ). Tex. Lab. Code § 451.001-.003. Claiming that Poly-America acted with malice, ill will, spite, or specific intent to cause injury, Luna sought both reinstatement and the imposition of punitive damages. He additionally sought a declaratory judgment that the arbitration agreement was unenforceable because, among other reasons, its provisions violated public policy and were unconscionable. Luna submitted two affidavits â his own, and that of an expert witness â in support of his claims. Poly-America responded with a motion to compel arbitration which, after a hearing, the trial court granted.
Luna sought a writ of mandamus in the court of appeals, reasserting his argument that provisions of the arbitration agreement were substantively unconscionable. The court of appeals held that, in light of the fee-splitting provisions and limitations on remedies, the arbitration agreement as a whole was substantively unconscionable. 175 S.W.3d 315, 318. Poly-America sought review in this Court. We hold that the arbitration agreementâs provision that eliminates available remedies under the Workersâ Compensation Act is unenforceable, but we find that provision severable from the arbitration agreement as a whole and conditionally grant Poly-Americaâs writ of mandamus.
II. Standard of Review
Mandamus is the proper means by which to seek review of an order compelling arbitration under the FAA. In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 483 (Tex.2001). In In re Palacios, we recognized that it is âimportant for federal and state law to be as consistent as possibleâ in enforcement and review of provisions under the FAA. 221 S.W.3d 564, 565 (Tex.2006) (per curiam) (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex.2005)). Federal courts may not review orders compelling arbitration and staying litigation (âeompel- and-stay ordersâ) by interlocutory appeal. See 9 U.S.C. § 16(b)(1) (â[A]n appeal may not be taken from an interlocutory order ... granting a stay of any action under Section 3 of this title.â). Accordingly, as we noted in Palacios, it would be inappropriate to exercise our own mandamus power in a manner inconsistent with the federal courtsâ practice. See Palacios, 221 S.W.3d at 565. Although mandamus review is generally available in federal courts to review non-appealable interlocutory rulings, mandamus is granted only in exceptional cases. See generally Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 288-90 & n. 13, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988) (holding that, where a particular order is not appealable, mandamus is available and âwill be appropriate in exceptional casesâ). As we acknowledged in Palacios, federal courts have applied this template to orders that cannot be appealed under the FAA, although they almost never grant mandamus relief. 221 S.W.3d at 565-66 (âEven after Green Tree [Financial Corp. â Alabama v. Randolph, 531 U.S. 79,121 S.Ct. 513, 148 L.Ed.2d 373 (2000)], the Fifth Circuit has held that federal mandamus review of an order staying a case for arbitration may still be available if a party can meet a âparticularly
Although federal precedent in this area is not uniformly clear, it appears a federal court would be permitted â albeit not compelled â to address the merits of the mandamus arguments in this case. If such review were categorically unavailable and unconscionability determinations the sole realm of arbitrators, as the dissenting Justice proposes, development of the law as to this threshold issue would be substantially hindered if not precluded altogether. Nevertheless, federal precedent counsels against granting relief unless the stringent requirements for mandamus are met. See Gulfstream, 485 U.S. at 289, 108 S.Ct. 1133. Federal courts grant mandamus only upon demonstration of a âclear and indisputableâ right to issuance of the writ: âFirst, the party seeking the issuance of the writ must have no other adequate means to attain the relief he desires.... Second, the petitioner must satisfy the burden of showing that his right to issuance of the writ is clear and indisputable. Third ... the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under the circumstances.â Cheney v. U.S. Dist. Court, 542 U.S. 367, 380-81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004). Our own mandamus standard is similar, requiring a demonstration that
III. Unconscionability and the Federal Arbitration Act
Poly-America argues that the FAAâs âstrong presumptionâ favoring arbitration applies in this case, and furthermore that the FAA preempts all state public-policy grounds for finding the agreement to arbitrate unenforceable. See In re R & R Personnel Specialists of Tyler, Inc., 146 S.W.3d 699, 705 (Tex.App. â Tyler2004) (holding that the FAA preempts âany public policy underlying the Texas workersâ compensation statutes that is contrary to the enforceability of arbitration agreementsâ). Because neither this presumption nor federal preemption applies in a state courtâs assessment of whether parties have entered into a valid and enforceable agreement to arbitrate under state contract law, we disagree.
Section 2 of the FAA provides that arbitration agreements âshall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.â 9 U.S.C. § 2 (emphasis added). Thus, an agreement to arbitrate is valid under the FAA if it meets the requirements of the general contract law of the applicable state. In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex.2005) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). In determining the validity of an agreement to arbitrate under the FAA, courts must first apply state law governing contract formation. See 9 U.S.C. § 2; First Options, 514 U.S. at 944, 115 S.Ct. 1920.
The United States Supreme Court has repeatedly emphasized that âstate law, whether of legislative or judicial origin, is applicable [to the determination of the validity of an agreement to arbitrate] if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.â Perry v. Thomas, 482 U.S. 483, 493 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). Thus, courts âmay not ... invalidate arbitration agreements under state laws applicable only to arbitration provisions.â Doctorâs Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); see also Perry, 482 U.S. at 493 n. 9, 107 S.Ct. 2520 (âA state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with [section 2].â).
However, the purpose and language of the FAA require only that agreements to arbitrate be placed âupon the same footing as other contracts.â Doctorâs Assocs., 517 U.S. at 687, 116 S.Ct. 1652 (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)) (emphasis added); see also H.R. Rep. No. 68-96, at 1 (1924) (noting that by enacting section 2, Congress sought to place agreements to arbitrate âupon the same footing as other contracts, where [they] belong[]â). Perry makes clear that state courts may not fashion special rules regarding the enforceability
Nevertheless, under Texas law, as with any other contract, agreements to arbitrate are valid unless grounds exist at law or in equity for revocation of the agreement. The burden of proving such a ground â such as fraud, unconscion-ability or voidness under public policy-falls on the party opposing the contract. See FirstMerit Bank, 52 S.W.3d at 756. Thus, while we reject Poly-Americaâs assertions that we must apply a presumption favoring arbitration in assessing whether the parties entered into an enforceable agreement under Texas law and that the FAA preempts Texas public policies that may make certain contractual provisions generally unenforceable, Luna nevertheless bears the burden to establish that the challenged provisions are unenforceable.
IV. Arbitration and Unconscionability Under Texas Law
A. General Standard
Agreements to arbitrate disputes between employers and employees are generally enforceable under Texas law; there is nothing per se unconscionable about an agreement to arbitrate employment disputes and, in fact, Texas law has historically favored agreements to resolve such disputes by arbitration. See Advance PCS, 172 S.W.3d at 608; EZ Pawn Corp. v. Mandas, 934 S.W.2d 87, 90 (Tex.1996); Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996).
Unconscionable contracts, however â whether relating to arbitration or not â are unenforceable under Texas law. A contract is unenforceable if, âgiven the partiesâ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.â FirstMerit Bank, 52 S.W.3d at 757; see also In re Halliburton Co., 80 S.W.3d 566, 571 (Tex.2002) (â[S]ubstantive unconscion-ability ... refers to the fairness of the arbitration provision itself.â). Unconscion-ability is to be determined in light of a variety of factors, which aim to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly one-sided. See Dan B. Dobbs, 2 Law of Remedies 703, 706 (2d ed.1993); see also Restatement (Second) of Contracts § 208, cmt. a (1979) (âThe determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose, and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud, and other invalidating causes; the policy also overlaps with rules which render particu
Whether a contract is contrary to public policy or unconscionable at the time it is formed is a question of law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex.2006). Because a trial court has no discretion to determine what the law is or apply the law incorrectly, its clear failure to properly analyze or apply the law of unconscionability constitutes an abuse of discretion. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992).
B. Arbitration and Statutory Rights
An arbitration agreement covering statutory claims is valid so long as the arbitration agreement does not waive the substantive rights and remedies the statute affords and the arbitration procedures are fair, such that the employee may âeffectively vindicate his statutory rights.â In re Halliburton, 80 S.W.3d at 572. Federal courts, analyzing the enforceability of arbitration provisions relating to federal statutory claims, have noted that such contracts are not enforceable when a party is forced to âforgo the substantive rights afforded by the statute,â as opposed to merely âsubmitting] to resolution in an arbitral, rather than a judicial, forum.â Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). In the context of federal claims, either an expression of federal intent to exclude certain categories of claims from arbitration, see Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), or the excessive waiver of statutory rights, see Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346, may render a particular dispute un-arbitrable. State courts, bound by the FAA under the supremacy clause, have more limited power, as the FAA preempts state laws that specifically disfavor arbitration. Perry, 482 U.S. at 492 n. 9, 107 S.Ct. 2520; see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992) (holding that the FAA preempts state statutes to the extent they are inconsistent with the FAAâs purpose to require courts to compel arbitration when the parties have so provided in their contracts).
However, where a particular waiver of substantive remedies or other provision of a contract is unconscionable â independent of the agreement to arbitrate â it will be unenforceable even though included in an agreement to arbitrate. See Gilmer, 500 U.S. at 33, 111 S.Ct. 1647 (â[Arbitration agreements are enforceable, âsave upon such grounds as exist at law or in equity for the revocation of any contract.â â) (quoting 9 U.S.C. § 2). To determine the permissibility of restrictions on a particular workerâs access to statutory rights, we analyze the provisions of the actual statute at issue; thus, to analyze the enforceability of the various restrictions and waivers in the employment contract at issue in this case, we turn to the retaliatory-discharge provisions of the Texas Workersâ Compensation Act, Tex. Lab. Code §§ 451.001-.003.
C. Purpose and Structure of the Texas Workersâ Compensation Actâs Anti-Retaliation Provisions
The Texas Workersâ Compensation Act was enacted to protect Texas
The Texas Workersâ Compensation Act provides that a subscriber to the workersâ compensation system may not âdischarge or in any other manner discriminate against an employee because the employee has ... filed a workersâ compensation claim in good faith.â Tex. Lab.Code § 451.001 â .001(1). The Legislatureâs purpose in enacting section 451.001 was to protect persons entitled to benefits under the Act and to prevent them from being discharged for seeking to collect those benefits. See Tex. Steel Co. v. Douglas, 533 S.W.2d 111, 115 (Tex.Civ.App.-Fort Worth 1976, writ ref d n.r.e.). Since recovery of benefits under the Workersâ Compensation Act is the exclusive remedy available to injured employees of subscribing employers, see Tex. Lab.Code § 408.001(a), the availability of remedies for retaliatory discharge protects employeesâ exercise of their statutory rights to compensation under the Act. See Padilla v. Carrier Air Conditioning, 67 F.Supp.2d 650, 664 (E.D.Tex.1999); Mid-South Bottling Co. v. Cigainero, 799 S.W.2d 385, 389 (Tex.App.-Texarkana 1990, writ denied). In accordance with these principles, the anti-retaliation provisions of the Act must protect employees even before they have actually filed a claim, because otherwise âthe law would be completely useless and would not accomplish the purpose for which it was enacted.... [A]ll the employer would have to do in order to avoid the consequences of the statute would be to fire the injured workman before he filed the claim.â Tex. Steel Co., 533 S.W.2d at 115.
âThe decisions of this State do not look with favor upon contracts waiving rights arising under the Workmenâs Compensation Law.â Huffman, 128 S.W.2d at 6. Such waivers affect not only the individual employee subject to the waiver, but also the public, which bears the cost of the workersâ compensation program. See Holt v. Contâl Group, Inc., 708 F.2d 87, 91 (2d Cir.1983) (âA retaliatory discharge carries with it the distinct risk that other employees may be deterred from protecting their rights under the Act.â). Therefore, we
This case concerns the validity of a subscribing employerâs use of an agreement that, in the course of requiring arbitration between the parties in work-related disputes, imposes a series of procedural and substantive limits on the employeeâs rights. We must analyze the challenged limitations in light of the policies underlying the Workersâ Compensation Act, and the purposes of its anti-retaliation provisions, to determine whether they improperly shift the cost of injury from a subscribing employer onto its employees in contravention of the Actâs provisions. Cf. Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 550 (Tex. 2001) (noting that the agreements did not âshift the risk of on-the-job injuries to the employeesâ); see also Gentry v. Superior Court, 42 Cal.4th 443, 456, 64 Cal.Rptr.3d 773, 782, 165 P.3d 556 (2007), cert, denied â U.S. -, 128 S.Ct. 1743, 170 L.Ed.2d 541 (2008) (noting that under California law, when an employee is bound by a predispute arbitration agreement to adjudicate nonwaivable statutory employment rights, the arbitration agreement may not limit damages, discovery must be sufficient to arbitrate the claim, there must be a written arbitration decision, and the employer must pay all costs âunique to arbitrationâ).
Y. The Challenged Arbitration Provisions
A. Limitation of Remedies
The Workersâ Compensation Act specifies that â[a] person who violates section 451.001 is liable for reasonable damages incurred by the employee as a result of the violation,â and that â[a]n employee discharged in violation of section 451.001 is entitled to reinstatement in the former position of employment.â Tex. Lab. Code § 451.002(a)-(b). We have previously explained that âreasonable damagesâ are not limited to actual damages, see Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex.1987), but may include future damages, as well as exemplary or punitive damages when it is shown that the employer acted with actual malice in retaliating against the employee for filing a workersâ compensation claim. See Contâl Coffee Prods, v. Cazarez, 937 S.W.2d 444, 454 (Tex.1996); Carnation Co. v. Bomer, 610
Poly-America argues that the court of appealsâ decision conflicts with Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 822 (Tex.App.-San Antonio 1996, no writ), and decisions of other courts indicating that limitations of remedies are permissible, e.g., Inv. Partners v. Glamour Shots Licensing, Inc., 298 F.3d 314, 318 n. 1 (5th Cir.2002). Because we view the anti-retaliation provisions of the Workersâ Compensation Act as a non-waivable legislative system for deterrence necessary to the nondiscriminatory and effective operation of the Texas Workersâ Compensation system as a whole, we agree with Luna that the provisions eliminating key remedies under the statute are unenforceable.
An arbitration agreement covering statutory claims is valid so long as âthe arbitration agreement does not waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory rights.â In re Halliburton, 80 S.W.3d at 572. â â[B]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.â â Gilmer, 500 U.S. at 26, 111 S.Ct. 1647 (quoting Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346). In this case, Luna contends Poly-America acted with actual malice in unlawfully discharging him, a claim for which the Workersâ Compensation Act allows punitive damages. See Tex. Lab. Code § 451.002; Azar Nut Co., 734 S.W.2d at 668. Permitting an employer to contractually absolve itself of this statutory remedy would undermine the deterrent purpose of the Workersâ Compensation Actâs anti-retaliation provisions. In creating the Texas Workersâ Compensation Act, the Legislature carefully balanced competing interests â of employees subject to the risk of injury, employers, and insurance carriers â in an attempt to design a viable compensation system, all within constitutional limitations. See Garcia, 893 S.W.2d at 521. Were we to endorse Poly-Americaâs position and permit enforcement of these remedy limitations, a subscribing employer could avoid the Actâs penalties by conditioning employment upon waiver of the very provisions designed to protect employees who have been the subject of wrongful retaliation.
Our decision in Lawrence, 44 S.W.3d 544, is fully consistent with this view. There, employees of a non-subscribing em
This case presents just such a liability-limiting provision, imposed as a condition of employment, which we suggested in Lawrence would violate public policy. See id. Such waivers would allow subscribing employers to enjoy the Actâs limited-liability benefits while exposing workers to exactly the sort of costs â of injuries paid for by the employee for fear of retribution for making a claim â that the Act is specifically designed to shift onto the employer. The balance established by the Act is thus âtipped so that the employeeâs benefits under the statute are substantially reduced, [and] the clear intent of the legislature is thwarted.â Hazelwood, 596 S.W.2d at 206. As we have previously refused to enforce private agreements that allow subscribing employers to reap the systemâs benefits while burdening employees with the cost of injury, so too we find the provisions of the present contract â which substantively limit Poly-Americaâs liability for wrongful retaliation and thereby undermine the deterrent regime the Legislature specifically designed to protect Texas workers â void under Texas law. See Tex. Steel, 533 S.W.2d at 115; Holt, 708 F.2d at 91.
B. Fee-Splitting Provision
The arbitration agreements provide that, in the event of a claim, all fees related to arbitration â including but not limited to mediation fees, the arbitratorsâ fees, costs of procuring a location for a hearing, and court reporter fees â will be split equally between the employer and the employee, with the employeeâs contribution capped at an amount equal to âthe gross compensation earned by the Employee in Employeeâs highest earning month in the twelve months prior to the time the arbitrator issues his award.â The court of appeals held that this provision âweighted] heavily toward a finding of substantive unconscionability.â 175 S.W.3d at 322. Poly-America argues that this was clear error: first, because the court of appeals improperly inferred that Luna could not afford likely arbitration costs based solely on subjective evidence and, second, because it faded to compare such costs to the
1. Evidentiary Challenge
Poly-America claims that the court of appeals, by crediting Lunaâs factual allegations concerning his financial inability to share arbitration costs, improperly applied a new evidentiary standard that will require all parties seeking to compel arbitration to engage in expensive discovery whenever a resisting party submits cursory and subjective evidence that arbitration costs are âunaffordable.â This evi-dentiary burden, Poly-America argues, is contrary to Texas law and policy that supports summary disposition of motions to compel arbitration. In response, Luna contends the facts upon which the court of appeals relied could have been controverted by affidavit or cross-examination, which Poly-America failed to do; consequently, the court of appeals based its ruling on the undisputed facts established by Lunaâs affidavits. Both parties cite Anglin, 842 S.W.2d at 269, to support their respective positions. There, we defined the proper circumstances under which a trial court should hold a full evidentiary hearing on a motion to compel arbitration:
Because the main benefits of arbitration lie in expedited and less expensive disposition of a dispute, and the legislature has mandated that a motion to compel arbitration be decided summarily, we think it unlikely that the legislature intended the issue to be resolved following a full evidentiary hearing in all cases. We also envision that the hearing at which a motion to compel arbitration is decided would ordinarily involve application of the terms of the arbitration agreement to undisputed facts, amenable to proof by affidavit. With these considerations in mind, we hold that the trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations. However, if the material facts necessary to determine the issue are controverted, by an opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine the disputed material facts.
Id. Because the only facts Luna presented on the motion to compel were uncontro-verted under this standard â Lunaâs affidavits accompanying his original petition were neither contradicted nor challenged in Poly-Americaâs response â we believe the court of appeals acted properly in crediting those facts on appeal.
Luna attached to his original petition his own affidavit and that of an expert witness providing detailed estimates of the likely cost of arbitration in Lunaâs case, and Lunaâs expected share under the agreementâs capped fee-splitting provision based on his monthly salary (approximately $3,300.00) as a Poly-America supervisor. Luna described his anticipated share of the arbitration costs as âway more money than I can afford,â and averred that, if he
Poly-America did not dispute these facts but asserted legal arguments in its pleadings that the cost provisions, as written or as applied, were not unconscionable under Texas law. At the hearing on its motion to compel, Poly-America again asserted only legal arguments in response to Lunaâs challenge to the cost-splitting provision. There is no indication in the record that the trial court discredited or otherwise viewed the facts recited in Lunaâs affidavits as insufficient; rather, on the basis of Poly-Americaâs legal arguments, the trial court granted the motion to compel. This disposition was consistent with our statements in Anglin in which we indicated that motions to compel should be decided summarily unless disputed issues of fact require a full evidentiary hearing. See id.
However, the court of appeals clearly differed from the trial court in its view of the law. It held that the trial courtâs granting of the motion to compel â in light of Lunaâs averred inability to afford his likely arbitration costs and the agreementâs other limitations â was an abuse of discretion. 175 S.W.3d at 318-20. In doing so, the court of appeals properly credited the undisputed facts contained in Lunaâs affidavits as to the total expected cost of arbitration and Lunaâs anticipated share based upon his pre-termination monthly income. Id. at 319-20. Poly-America contends the court of appeals improperly ruled based on Lunaâs subjective, and thus practically incontrovertible, belief that he could not afford arbitration, which does not satisfy this Courtâs requirements of âspecificâ evidence to support claims of unconscionably expensive arbitration. See In re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex.2007). However, the court of appeals relied not solely upon Lunaâs belief but upon his and his expertâs specific monetary estimates, which provided objective support for Lunaâs uncontroverted claim that arbitration costs would preclude his pursuit of the lawsuit. See 175 S.W.3d at 319. The court of appeals did not, therefore, rely solely on subjective and incontrovertible allegations.
2. Unconscionability of Fee-Splitting Provisions
Poly-America alternatively challenges the court of appealsâ conclusion that the agreementâs cost-allocation provisions favor a finding of unconscionability because the court did not consider the relative costs that Luna would likely incur if the case were litigated in court â costs that, based on Poly-Americaâs estimates, would greatly exceed the capped cost of arbitration â and Luna failed to provide any evidence of the actual cost of arbitration that he would bear. Although we have no doubt that some fee-splitting provisions may operate to discourage employees like Luna from seeking vindication of their rights under the Workersâ Compensation Act, we must agree with Poly-America that the trial court did not abuse its discretion in ordering arbitration in this case.
Courts across the country have universally condemned the use of fee-splitting agreements in employment contracts that have the effect of deterring potential litigants from vindicating their statutory rights in an arbitral forum. See Green Tree, 531 U.S. at 90-91, 121 S.Ct. 513. Some courts have gone so far as to find fee-sharing agreements unenforceable per se. See, e.g., Cole v. Bums Intâl Sec.
We agree that fee-splitting provisions that operate to prohibit an employee from fully and effectively vindicating statutory rights are not enforceable. See Halliburton, 80 S.W.3d at 572. However, this Court joins the majority of other courts which â though recognizing the same policy concerns articulated by courts holding fee-splitting arrangements per se unconscionable â require some evidence that a complaining party will likely incur arbitration costs in such an amount as to deter enforcement of statutory rights in the arbitral forum. See U.S. Home Corp., 236 S.W.3d at 764; FirstMerit Bank, 52 S.W.3d at 756-57. As federal courts have likewise recognized:
[I]n some cases, the potential of incurring large arbitration costs and fees will deter potential litigants from seeking to vindicate their rights in the arbitral forum .... [I]f the fees and costs of the arbitral forum deter potential litigants, then that forum is clearly not an effective, or even adequate, substitute for the judicial forum.... [T]he burden of demonstrating that incurring such costs is likely under a given set of circumstances rests, at least initially, with the party opposing arbitration.
Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659-60 (6th Cir.2003); accord Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir.2001); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 16 (1st Cir.1999).
Luna contends the magnitude of the fee he could incur under the arbitration agreement, which he estimates to be as high as $3,300, will prevent him from pursuing his claim. Poly-America counters that litigation costs would be much higher, and therefore the arbitration agreementâs capped cost-splitting provision benefits the employee and cannot be unconscionable. It is true that in evaluating the enforceability of fee-splitting provisions, some courts take into account the relative costs of arbitration versus litigation. See, e.g., Bradford, 238 F.3d at 556 n. 5 (focusing upon âa claimantâs expected or actual arbitration costs and his ability to pay those costs, measured against a baseline of the claimantâs expected costs for litigation and his ability to pay those costsâ). However, at this stage of the proceedings, much of this evidence is necessarily speculative, and thus counsels against a courtâs ex ante interference with arbitration.
We do not doubt that arbitration costs might be so high in a given case as to preclude access to the forum. But âthe âriskâ that [a claimant] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.â Green Tree, 531 U.S. at 91, 121 S.Ct. 513. Luna has not demonstrated that the ability to pursue his claim in the arbitral forum hinges upon his payment of the estimated costs; to the contrary, depending upon the circumstances, Luna may not have to bear any cost at all, and
Just as we allow litigants who demonstrate an inability to pay costs to proceed with their claims in court, however, we see nothing that would prevent arbitrators from fairly adjusting employee cost provisions when necessary to allow full vindication of statutory rights in the arbitral forum. See Tex.R. Civ. P. 145. The contract presented in this case specifically provides that the arbitrator may modify unconscionable terms; if the cost provisions precluded Lunaâs enforcement of his non-waivable statutory rights, they would surely be unconscionable for the reasons we have explained and the arbitrator would be free to modify them. The arbitrator is better situated to assess whether the cost provision in this case will hinder effective vindication of Lunaâs statutory rights and, if so, to modify the contractâs terms accordingly. See Halliburton, 80 S.W.3d at 572. We conclude the trial court did not abuse its discretion in refusing to declare the contractâs cost-splitting provision unconscionable and nullify the arbitration agreement.
C. Discovery Limitations
The 2002 agreement provides that each party may serve on the other a single set of twenty-five interrogatories (including sub-parts) and one set of twenty-five requests for production or inspection of documents or tangible things. Additionally, the agreement includes limitations alleged by Luna to be unconscionable: (1) a limitation of each party to a single, six-hour deposition; (2) a prohibition on requests for admission; (3) a ban on inquiry into Poly-Americaâs finances; and (4) a confidentiality provision requiring confidentiality of the parties and their attorneys regarding all aspects of the arbitration. Luna contends these limitations make it virtually impossible for him to prove his claim of retaliatory discharge and render the arbitration agreement unconscionable.
Although an issue of first impression in this Court, several courts around the country have analyzed the enforceability of similar arbitration provisions limiting partiesâ access to various forms of discovery. Applying a rule functionally equivalent to that used to analyze fee-splitting provisions, these courts refuse to enforce such limitations when adequate evidence is presented that a plaintiffâs ability to present his or her claims in an arbitral forum is thereby hindered. See, e.g., Hulett v. Capitol Auto Group, Inc., No. 07-6151-AA, 2007 WL 3232283, at *4-*5 (D.Or. Oct.29, 2007) (holding discovery restrictions that prohibited requests for admission or interrogatories and limited parties to three depositions unconscionable because they âserve to unreasonably withhold information from plaintiff that would otherwise be available through discovery, thus hindering her ability to present her claims in an arbitration forumâ); accord Ostroff v. Alterra Healthcare Corp., 433 F.Supp.2d 538, 547 (E.D.Pa.2006). Courts upholding arbitration provisions containing discovery limitations have done so in recognition of the same principle, but determined that a par
We agree with these courts that, where the underlying substantive right is not waivable, ex ante limitations on discovery that unreasonably impede effective prosecution of such rights are likewise unenforceable. However, because the relevant inquiry depends upon the facts presented in a given case and the particular discovery limitationsâ effect upon the relevant statutory regime, we are doubtful that courts â assessing claims and discovery limitations before arbitration beginsâ are in the best position to accurately determine which limits on discovery will have such impermissible effect.
In this case, Lunaâs expert witness testified that in most employment-discharge cases the employer only needs to take the plaintiffs deposition, while the plaintiff generally needs testimony from a number of witnesses to disprove the employerâs likely defense that termination was based on poor performance. Additionally, the expert stated, the employee will likely wish to depose additional witnesses to show a pattern or practice of discrimination, whereas the employer typically has a ready pool of available employees and managers to assist in preparing for the arbitration. For these reasons, the expert concluded, the arbitration agreementâs discovery limitations âsignificantly reduce the plaintiffs ability to prevail in arbitration, regardless of how strong a plaintiffs case is on the merits.â
We agree that if the discovery limitations the arbitration agreement imposes operate to prevent effective presentation of Lunaâs claim they would be unenforceable. But at this point in the proceedings, without knowing what the particular claims and defenses â and the evidence needed to prove them â will be, discerning the discovery limitationsâ potential preclu-sive effect is largely speculative. The assessment of particular discovery needs in a given case and, in turn, the enforceability of limitations thereon, is a determination we believe best suited to the arbitrator as the case unfolds. As with cost-sharing, discovery limitations that prevent vindication of non-waivable rights or âprove insufficient to allow [Luna] a fair opportunity to present [his] claims,â Gilmer, 500 U.S. at 31, 111 S.Ct. 1647, would be unconscionable and thus not binding on the arbitrator, as the agreement in this case specifically acknowledges. At this point in the proceedings, though, we cannot conclude that the evidence presented to the trial court compelled a finding that the discovery limitations were per se unconscionable. Thus, the trial court did not abuse its discretion.
D. Prohibition on Inquiry into âGood Causeâ
Luna claims the arbitration provision that prohibits the arbitratorâs ability âto apply a âjust causeâ or âgood causeâ standard to claims relating to Employeeâs claims concerning his employment or separation therefromâ is substantively unconscionable because it prohibits, in a retaliatory-discharge case, inquiry into whether the employer had a valid, nondiscriminatory reason for firing the employee. Poly-America contends the contract cannot be read as Luna claims, and in fact does not
E. One-Year Limitations Period
The arbitration agreement includes a clause that requires written notice of a claim to be filed within a maximum of one year from the events giving rise to an arbitrable claim. Luna contends this provision unconscionably shortens the two-year statute of limitations applicable to claims of retaliatory discharge. See Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 927 (Tex.1996). However, as Luna filed this case well within the one-year period and thus suffered no prejudice from this provision, it is immaterial to Lunaâs claims of substantive unconsciona-bility.
F. Lifetime Application
Finally, Luna argues that the arbitration agreement unconscionably applies even to claims that may arise after Lunaâs employment with Poly-America has ended and which may have nothing to do with Lunaâs employment. While we can imagine circumstances that might present a closer question, Lunaâs claims here concern his employment and termination, the central focus of the agreement. We thus agree with the court of appeals that this provision does not render the arbitration agreement per se unconscionable. See 175 S.W.3d at 326.
VI. Severability
The arbitration agreement in this case contains a severability clause, which provides as follows:
Should any term of this Agreement be declared illegal, unenforceable, or unconscionable, the remaining terms of the Agreement shall remain in full force and effect. To the extent possible, both Employee and Company desire that the Arbitrator modify the term(s) declared to be illegal, unenforceable, or unconscionable in such a way as to retain the intended meaning of the term(s) as closely as possible.
Poly-America argues that, even if elements of its arbitration agreement with Luna are unconscionable, arbitration is nevertheless required because the unconscionable provisions are severable from the general agreement to arbitrate.
An illegal or unconscionable provision of a contract may generally be severed so long as it does not constitute the essential purpose of the agreement. See Williams v. Williams, 569 S.W.2d 867, 871 (Tex.1978); see also Hoover Slovacek, 206 S.W.3d at 565 (citing Restatement (Second) of Conteacts § 208 (1981)). Whether or not the invalidity of a particular provision affects the rest of the contract depends upon whether the remaining provisions are independent or mutually dependent promises, which courts determine by looking to the language of the contract itself. See John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 86 (Tex.App.Houston [14th Dist.] 1996, writ denied) (citing Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708 (Tex.1982)). The relevant inquiry is whether or not parties would have entered into the agreement absent the unenforceable provisions. See Patrizi v. McAninch, 153 Tex. 389, 269 S.W.2d 343, 348 (1954); see also City of Beaumont v. Intâl Assân of Firefighters, Local Union No. S99, 241 S.W.3d 208, 215 (Tex.App.-Beaumont 2007, no pet.) (citing Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex.App.-Dallas 1989, writ denied)); Stroman, 923 S.W.2d at 86 (citing Frankiewicz v. Natâl Comp. Assocs., 633 S.W.2d 505, 507-08 (Tex.1982)). We have previously allowed severance of illegal contract provisions where the invalid provisions were âonly a part of the many reciprocal promises in the agreementâ and âdid not constitute the main or essential purpose of the agreement.â Williams, 569 S.W.2d at 871.
The 2002 version of the arbitration agreement in this case is over five pages long and contains numerous provisions not challenged by Luna as imposing any unconscionable burdens: procedures for mediation, selection of a neutral arbitrator, filing of motions, and other general provisions governing arbitration procedures. We agree with Poly-America that the intent of the parties, as expressed by the severability clause, is that unconscionable provisions be excised where possible. Furthermore, it is clear by the contractâs terms that the main purpose of the agreement is for the parties to submit their disputes to an arbitral forum rather than proceed in court. See id. Excising the unconscionable provisions we have identified will not defeat or undermine this purpose, which we have upheld in the context of agreements to arbitrate employment disputes. See AdvancePCS, 172 S.W.3d at 608; EZ Pawn Corp., 934 S.W.2d at 90; Cantella & Co., 924 S.W.2d at 944.
VII. Conclusion
We hold invalid, as substantively unconscionable and void, provisions of the par
. While it is true that several of these cases pre-date the Supreme Courtâs decision in Green Tree, they do not pre-date the authority on which the Supreme Court relied in noting that an order compelling arbitration and staying rather than dismissing the underlying litigation âwould not be appealable.â 531 U.S. at 87 n. 2, 121 S.Ct. 513 (citing 9 U.S.C. § 16(b)(1)) (emphasis added). Unlike the present case, the two cases in which the courts denied mandamus relief from compel- and-stay orders did not involve claims that enforcement of the arbitration provisions would prevent the plaintiffs from vindicating important statutory rights. See Manion, 255 F.3d 535; McDermott Intâl, Inc., 981 F.2d 744. In Douglas, the Ninth Circuit granted mandamus relief, concluding that a choice-of-law provision in the arbitration agreement would not allow enforcement of the agreement under circumstances that the forum state would deem unconscionable. Douglas, 495 F.3d at 1068.
. The Texas Legislature, exercising its policy-making role, responded immediately and outlawed such plans. See Tex. Lab.Code § 406.033(e).
. The Society for Human Resource Management Texas State Council submitted an ami-cus brief supporting Poly-America's arguments, arguing that the court of appeals wrongfully failed to compare Lunaâs alleged costs with the prospective cost of litigation. The Texas Trial Lawyers Association likewise submitted an amicus brief supporting Luna, arguing that unconscionability should be determined by comparing âthe general financial condition of the claimantâs peer groupâ to estimated arbitration costs.
. The Court received briefs from amici curiae the Texas Association of Business and the Society for Human Resource Management Texas State Council, both of which argue that the court of appeals erred in refusing to sever the provisions it deemed unconscionable from the remainder of the arbitration agreement. The brief submitted by amicus curiae the Tex