Court of Appeals of Texas, Corpus Christi-Edinburg.
AOF SERVICES, LLC, Appellant,
Ronald SANTORSOLA, Appellee.
Delivered and filed March 24, 2016
On appeal from the 25th District Court of Gonzales County, Texas. Hon. W.C. Kirkendall, District Judge.
Attorneys & Firms
Javier Espinoza, San Antonio, TX, for Appellee.
Paul Christopher Allred, Attorney at Law, Dallas, TX, for Appellant.
Before Justices Longoria
Memorandum Opinion by Justice Benavides
*1 By three issues, appellant AOF Services, LLC (“AOF”) argues that the trial court erred by: (1) ruling that its arbitration agreement with appellee Ronald Santorsola was unconscionable and unenforceable, and (2) denying AOF’s combined plea in abatement and motion to compel arbitration. We affirm.
In 2013, Santorsola was an employee of AOF. As part of his employment agreement, Santorsola signed and agreed to settle disputes pursuant to the AOF Dispute Resolution Policy (“policy”). The policy stated that:
ANY CLAIM, CONTROVERSY OR OTHER DISPUTE RELATING TO YOUR EMPLOYMENT, SEPARATION FROM THE COMPANY, OR FOLLOWING SEPARATION FROM THE COMPANY, SHALL BE RESOLVED BY ARBITRATION, IN LIEU OF A JURY TRIAL OR ANY OTHER LEGAL PROCEEDING, PURSUANT TO THE FEDERAL ARBITRATION ACT (TITLE 9, UNITED STATES CODE), AND IN ACCORDANCE WITH THIS DISPUTE RESOLUTION POLICY.
Exclusions from Arbitration—The following claims are excluded from the requirements of mandatory arbitration: 1) workers compensation claims administered by a state agency in accordance with procedures provided by state law (claims alleging workers compensation retaliation will be arbitrated pursuant to this Policy); 2) administrative procedures required by state or federal law for the determination of unemployment compensation claims; 3) Employment benefit claims for which administrative procedures are provided by the company’s ERISA plan; 4) claims by the company for injunctive relief to protect company personnel or property rights, or to enjoin the breach of an legal or contractual duty owed by a current or former Team Member to the company; and 5) claims not arbitrable under applicable law. Claims related to the subject matter of exclusions 1 through 3, that are not subject to administrative remedies, will remain subject to arbitration (e.g., a claim following exhaustion of administrative remedies, or a claim for which there is no administrative remedy).
Initiation of Arbitration—To initiate arbitration, the initiating party must give the other party written notice of a demand for arbitration prior to the expiration of the statute of limitations applicable to the claim and must also contact AAA.... An initiating Team Member will pay the first $100 in filing fees to the AAA and the Company will pay the portion of the filing fees that exceed $100, plus any other administrative fees or costs (other than the arbitrator’s compensation). The arbitrator’s compensation will be paid 20% by the Team Member and 80% by the Company.
About two months after his employment began, Santorsola was injured on the job and filed a claim for workers’ compensation. A month after his injury, AOF terminated Santorsola. Santorsola filed suit in the trial court for wrongful termination under TEX. CIV. PRAC. & REM.CODE ANN. § 51.016 (West, Westlaw through 2015 R.S.) (permitting interlocutory appeals of orders denying arbitration under the FAA).
*2 By its three issues, which we address as one, AOF complains that the trial court erred by denying its motion to compel arbitration, after finding the arbitration agreement unconscionable.
A. Standard of Review
“We apply an abuse of discretion standard of review respecting interlocutory appeals under In re Labatt, 279 S.W.3d at 643).
B. Unconscionability of Arbitration Agreements
“In general, a party seeking to compel arbitration under the FAA must establish (1) the existence of a valid, enforceable arbitration agreement and (2) that the claims at issue fall within that agreement’s scope.” In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex.2005) (orig.proceeding).
Santorsola argued to the trial court that the arbitration agreement was unconscionable and therefore invalid, because it was one-sided in favor of AOF, it unreasonably limited discovery, and the fee-splitting agreement would prevent him from arbitrating his claim. Because Texas law “favors arbitration, the party opposing arbitration bears the burden to prove unconscionability.” Pilot Travel, 416 S.W.3d at 180.
“Arbitration agreements may be either substantively or procedurally unconscionable, or both.” Royston, Rayzor, 467 S.W.3d at 499.
1. Fee–Splitting Agreement
*3 “An arbitration agreement may render a contract unconscionable if ‘the existence of large arbitration costs could preclude a litigant ... from effectively vindicating [his or her] federal statutory right in the arbitral forum.’ ” In re Olshan, 328 S.W.3d at 893.
“The party opposing arbitration bears the burden to show that the costs of arbitration render it unconscionable.” Id. When “a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.” Id. (quoting Green Tree, 531 U.S. at 92).
The party opposing arbitration is not required to incur the costs of arbitration in order to show excessive fees, but “must at least provide evidence of the likely cost of their particular arbitration, through invoices, expert testimony, reliable cost estimates, or other comparable evidence.” Id. “An agreement that provides for fee-splitting is not, by itself, unconscionable.” Pilot Travel, 416 S.W.3d at 181.
Santorsola, as part of his employment agreement, agreed to a fee-splitting arrangement that required him to pay 20 percent of the arbitrator’s compensation and AOF to pay the remaining 80 percent. Further, there was no cap on the amount Santorsola would be obligated to pay under this agreement. However, in his affidavit to the trial court, Santorsola stated that he could not reasonably afford to pay more than $5,000.00. Santorsola goes on to state that if the costs of arbitration were over $5,000.00, he would most likely have to abandon his claim against AOF if forced to arbitration. Santorsola’s attorney’s affidavit states that he is a certified AAA arbitrator and knowledgeable about the amount of money required to arbitrate claims similar to Santorsola’s. In addition, Santorsola’s attorney attached an invoice from a similar claim he was involved in where the total cost of a one-day arbitration was over $20,000.00. Based on the evidence presented, if Santorsola’s case would take even one day, it is unlikely Santorsola could afford the arbitration. Santorsola alleged that proceeding with his case in the trial court would be more economically feasible, because, as his attorney stated, Santorsola would only be responsible for paying a nominal filing fee and hearings in the trial court are in essence free, enabling him to pursue his claim within his financial abilities.
In In re Poly–Am., a fee-splitting arrangement similar to the one Santorsola signed was included in the arbitration provision. Id. at 357.
*4 “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.” In re Poly–Am., 262 S.W.3d at 356.
In In re Poly–Am., the employee, Luna, presented the court with affidavits from himself and an expert. Id. at 356–57.
Our case here is distinguishable. Although AOF’s contract does have a fee-splitting agreement, there is no cap as to the amount of money Santorsola would be required to pay; thereby limiting his ability to pursue his claim in an arbitral forum. See id. at 356. There is also no provision within the arbitration agreement where by the arbitrator may modify the percentages of compensation owed by either party, unlike the agreement in In re Poly–America. See id. Therefore, we conclude that the trial court did not abuse its discretion by determining the arbitration agreement was unconscionable because the fee-splitting provision deters Santorsola’s ability to enforce his statutory rights. See id. at 356. The trial court properly denied AOF’s plea in abatement and motion to compel arbitration.
Because we find that the fee-splitting agreement made the arbitration agreement unconscionable, we do not need to address the other reasons the agreement was unconscionable raised by the parties. See TEX.R.APP. P. 47.1.
We affirm the trial court’s judgment.