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At a Glance:
Title:
In re Labatt Food Service, LP
Date:
May 1, 2009
Citation:
279 S.W.3d 640
Court:
Texas Supreme Court
Status:
Published Opinion

In re Labatt Food Service, LP

Supreme Court of Texas.

In re LABATT FOOD SERVICE, L.P., Relator.

No. 07–0419.

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Argued Sept. 9, 2008.

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Decided Feb. 13, 2009.

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Rehearing Denied May 1, 2009.

Attorneys & Firms

*642 Nissa M. Dunn, for relator.

Leo D. Figueroa, for real party in interest.

Opinion

Justice JOHNSON delivered the opinion of the Court.

Under Texas law, wrongful death beneficiaries are generally bound by a decedent’s pre-death contractual agreement because of the derivative nature of their claims. In this case, we consider whether the arbitration provision in an agreement between a decedent and his employer requires the employee’s wrongful death beneficiaries to arbitrate their wrongful death claims against the employer even though they did not sign the agreement. We hold that it does.

I. Background

Labatt Food Service, L.P. does not provide workers’ compensation insurance to cover its employees in the event of on-the-job injuries. Rather, it provides an “occupational injury plan” (the plan) under which its employees may elect to participate. To become participants in the plan, employees sign an agreement entitled “Election of Comprehensive Benefits, Indemnity, and Arbitration Agreement.” The agreement contains several numbered paragraphs. Of primary relevance to this proceeding are three of those paragraphs. Paragraph three provides that the employee elects to be covered under the plan “individually and on behalf of heirs and beneficiaries.” Paragraph three also provides that the employee will indemnify Labatt from claims and suits based on injury to or death of the employee from occupational causes, except for claims filed pursuant to the plan. Paragraph four consists of an arbitration clause providing that disputes related to either the agreement, the plan, or to an employee’s occupational injury or death must be submitted to binding arbitration pursuant to the Federal Arbitration Act (FAA). See 16. Paragraph eight provides for the severability of any invalid provision.

Carlos Dancy, Jr., an employee of Labatt, elected to participate in the plan and signed an agreement. Dancy later died from an apparent Texas Labor Code section 406.033(e).

The trial court denied Labatt’s motion without stating its reasons. The court of appeals denied mandamus relief. Labatt now seeks mandamus relief from this Court.

II. Are the Beneficiaries Bound to Arbitrate?

A. Standard of Review

A party denied the right to arbitrate pursuant to an agreement subject to *643 the FAA does not have an adequate remedy by appeal and is entitled to mandamus relief to correct a clear abuse of discretion. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).

B. Governing Law

Under the FAA, whether an arbitration agreement binds a nonsignatory is a gateway matter to be determined by courts rather than arbitrators unless the parties clearly and unmistakably provide otherwise. First Options of Chic., Inc. v. Kaplan, 514 U.S. 938, 944–45, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

We apply Texas procedural rules in determining whether nonsignatories are bound by an arbitration agreement. Fleetwood Enter., Inc. v. Gaskamp, 280 F.3d 1069, 1074 n. 5 (5th Cir.2002).

Mindful of the foregoing, we move to the issue before us—whether an arbitration agreement governed by the FAA binds the nonsignatory wrongful death beneficiaries of a party to the agreement.

C. Beneficiaries as Nonsignatories

We have previously determined that nonsignatories to an agreement subject to the FAA may be bound to an arbitration clause when rules of law or equity would bind them to the contract generally. Allied–Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (2005) (noting that a state “may not ... decide that a contract is fair enough to enforce all its basic terms ... [yet] not fair enough to enforce its arbitration clause”). Therefore, we look to whether the agreement signed by Dancy would generally bind his beneficiaries under Texas law.

Several rules of law and equity may bind nonsignatories to a contract. For example, we have held that the principles of equitable estoppel and agency may bind nonsignatories to an arbitration agreement. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755–56 (Tex.2001) (holding a nonsignatory who sues based on a contract subjects himself to the contract’s terms, including its arbitration agreement).

Labatt argues that under these circumstances the beneficiaries should be bound by the agreement because (1) they are third party beneficiaries of the agreement; (2) they are bound by the agreement because of the derivative nature of their claims; and (3) Texas Family Code section 151.001 afforded Dancy the legal authority to bind his minor children to the agreement. Because we determine it is dispositive, we first consider Labatt’s argument that the beneficiaries are bound to arbitrate due to the derivative nature of their claims.

At common law there was no recognized cause of action for the wrongful death of another person. Id. at 347.

Accordingly, we long ago held that a decedent’s pre-death contract may limit or totally bar a subsequent action by his wrongful death beneficiaries. See Id. at 992.

In Sullivan–Sanford Lumber Co., the Court again held that a pre-death contractual release signed by a decedent barred a subsequent action by his wrongful death beneficiaries. 155 S.W. at 180. The Sullivan–Sanford Lumber Company allowed non-employees to ride their trains without charge but issued them boarding passes containing the following language:

The user of this pass rides only on the following conditions: (1) This permit is accepted with the understanding that the person using it assumes all risk of injury of any character while using the same and hereby waives any claim for damages in case of injury....

155 S.W. at 180.

Consistent with our holdings in Thompson and Watson, many courts of appeals have held that a decedent’s pre-death contract may limit or bar a subsequent wrongful death action. See McClellan v. Boehmer, 700 S.W.2d 687, 690 (Tex.App.-Corpus Christi 1985, no writ) (release and settlement signed by automobile accident victim barred survival and wrongful death actions after victim died from injuries sustained in accident).

Despite this line of authority, the wrongful death beneficiaries argue that agreements to arbitrate are different than other contracts, and they should not be bound by Dancy’s agreement. We reject their argument. If we agreed with them, then wrongful death beneficiaries in Texas would be bound by a decedent’s contractual agreement that completely disposes of the beneficiaries’ claims, but they would not be bound by a contractual agreement that merely changes the forum in which *646 the claims are to be resolved. Not only would this be an anomalous result, we believe it would violate the FAA’s express requirement that states place arbitration contracts on equal footing with other contracts. Volt Info. Scs., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).

The beneficiaries also argue that they should not be bound because Dancy did not have the authority to bind them to the arbitration agreement when the wrongful death cause of action actually belongs to the surviving spouse, children, and parents of the deceased. While it is true that damages for a wrongful death action are for the exclusive benefit of the beneficiaries and are meant to compensate them for their own personal loss, the cause of action is still entirely derivative of the decedent’s rights. Russell, 841 S.W.2d at 347. Thus, regardless of the fact that Dancy’s beneficiaries are seeking compensation for their own personal loss, they still stand in Dancy’s legal shoes and are bound by his agreement.

In the alternative, the beneficiaries urge us to circumvent the derivative claim rule by holding that wrongful death actions are analogous to and should be treated similarly to loss of consortium claims. A tort action seeking damages for loss of consortium, however, is fundamentally different than a statutory wrongful death action. If Dancy had suffered a severe but nonfatal injury, his children would have been entitled to bring a claim to recover for the loss of care, guidance, love, and protection ordinarily provided by their father.1 Id. at 669.

A wrongful death action is different than a loss of consortium claim because the Wrongful Death Act expressly conditions the beneficiaries’ claims on the decedent’s right to maintain suit for his injuries. Russell, 841 S.W.2d at 346. The Legislature created an entirely derivative cause of action when it enacted the Wrongful Death Act, and Dancy’s beneficiaries are bringing an entirely derivative claim. Their wrongful death action is not in the same category as a loss of consortium claim for purposes of derivative status analysis. We decline their invitation to circumvent the clear language of the Wrongful Death Act.

In addition, other states have resolved this issue based on whether the wrongful death action is an independent or derivative cause of action under state law. See Herbert v. Superior Court, 169 Cal.App.3d 718, 215 Cal.Rptr. 477, 480 (1985) (beneficiaries bound when contract reflects intent of the parties to bind beneficiaries).

A review of the cases decided based on statutory language indicates that courts in states where wrongful death actions are recognized as independent and separate causes of action are more likely to hold that the beneficiaries are not bound by a decedent’s agreement to arbitrate, see, e.g., Bybee, 189 P.3d at 46 (“Courts that compel nonsignatory heirs to abide by arbitration agreements often do so because under their law a wrongful death cause of action is wholly derivative of and dependent on the underlying personal injury claim.”). Our holding is consistent with those in the majority of states that have statutes similar to the Texas statute and have considered the issue.

Some Texas courts of appeals have held that wrongful death beneficiaries are not bound by a decedent’s agreement to arbitrate. See Gomez v. Zardenetta, No. 04–97–0019–CV, 1998 WL 19858, at *7 (Tex.App.-San Antonio Jan.21, 1998, no pet.) (not designated for publication). To the extent the holdings of courts of appeals conflict with our decision, we disapprove of them.

III. The Indemnity Clause

The Labor Code provides that an employee’s cause of action against a non-subscriber employer to recover damages for personal injuries or death sustained in the course and scope of employment

may not be waived by an employee before the employee’s injury or death. Any agreement by an employee to waive [such] a cause of action ... before the employee’s injury or death is void and unenforceable.

Labor Code section 406.033(e). They, however, specify that their challenge to the agreement’s validity “is not dependent on or directed solely to the arbitration provision.” Instead, they argue that the contract as a whole, including its arbitration clause, is rendered invalid by the allegedly illegal indemnity clause because the clause is not severable.

There are two types of challenges to an arbitration provision: (1) a specific challenge to the validity of the arbitration agreement or clause, and (2) a broader challenge to the entire contract, either on a ground that directly affects the entire agreement, or on the ground that one of *648 the contract’s provisions is illegal and renders the whole contract invalid. In re FirstMerit Bank, 52 S.W.3d at 756 (noting that the defenses of unconscionability, duress, fraudulent inducement, and revocation must specifically relate to the arbitration part of a contract and not the contract as a whole if they are to defeat arbitration, and that validity of an arbitration provision is a separate issue from validity of the whole contract).

We recently considered the first type of challenge in Labor Code section 406.033(e). But as we explain below, we do not reach the issue of whether the indemnity clause is void because it is a question for the arbitrator.

The case now before us presents a challenge of the second type that we refer to above: a broad challenge to the entire contract on the ground that one of the contract’s provisions is illegal and renders the whole contract invalid, but not specifically challenging the arbitration clause. The Supreme Court addressed a similar challenge in *649 Id. at 449, 126 S.Ct. 1204. The United States Supreme Court held that “regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” Id.

Like the plaintiffs in Buckeye, the beneficiaries in this case challenge the contract on the ground that an illegal clause renders the whole contract void. The beneficiaries challenge the arbitration clause only in the sense that they also challenge all parts of the agreement because the parts comprise the whole. But, unless a challenge is to the arbitration clause or arbitration agreement itself, as it was in In re Poly–America, the question of a contract’s validity is for the arbitrator and not the courts. Accordingly, the beneficiaries’ challenge to the validity of the agreement must be determined by the arbitrator, and we do not address it. In re FirstMerit Bank, 52 S.W.3d at 756, 758.

Because of our disposition of the case, we do not address Labatt’s alternative argument that the FAA preempts In re R & R Pers. Specialists of Tyler, Inc., 146 S.W.3d 699, 703–04 (Tex.App.-Tyler 2004, orig. proceeding).

IV. Conclusion

If Dancy had sued Labatt for his own injuries immediately prior to his death, he would have been compelled to arbitrate his claims pursuant to his agreement. His beneficiaries, therefore, must arbitrate as their right to maintain a wrongful death action is entirely derivative of Dancy’s rights. The trial court clearly abused its discretion by refusing to compel arbitration.

We conditionally grant Labatt’s petition for writ of mandamus. The trial court is directed to enter an order compelling arbitration of the beneficiaries’ claims. We are confident the trial court will comply, and the writ will issue only if it fails to do so.

Footnotes

1

Dancy’s parents would not have been entitled to recover lost consortium damages had he survived his injuries. See Roberts v. Williamson, 111 S.W.3d 113, 119 (Tex.2003).

End of Document
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