Alamo Moving Strg v. Mayflower Transt LLC

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 1, 2002
• Docket: 02-50070
• Status: Unpublished

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT _____________________

No. 02-50070 Summary Calender ____________________

ALAMO MOVING AND STORAGE ONE CORPORATION; A-LSBDBC CORPORATION, doing business as Advanced Moving and Storage; SOUTHERN RELOCATION & STORAGE ONE CORPORATION,

Plaintiffs-Appellants,

versus

MAYFLOWER TRANSIT L.L.C.,

Defendant-Appellee. ___________________________________________________________________

Appeals from the United States District Court for the Western District of Texas, San Antonio (USDC No. SA-01-CV-411)

July 31, 2002

Before JOLLY, WIENER, and STEWART, Circuit Judges.

PER CURIAM:*

In this case, we hold that the district court did not err in

compelling arbitration between Alamo Moving and Storage Company, et

al. (“Alamo”) and Mayflower Transit L.L.C. (“Mayflower”). We also

hold that the district court committed reversible error in

dismissing Alamo’s indemnification claim with prejudice. The

* Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4. district court’s judgment is therefore affirmed in part and

reversed in part. We remand for a dismissal without prejudice of

Alamo’s indemnification claim.

I

Mayflower employed Alamo as its agent in the moving and

storage business in San Antonio, Texas. On January 19, 1999,

Joseph and Tia Duerrmeyer filed suit against Alamo alleging breach

of contract, conversion, fraud, and negligence in connection with

the Duerrmeyers’ move from Switzerland to San Antonio. On March 7,

2001, the jury returned a verdict against Alamo. The verdict

awarded the Duerrmeyers $318,233 in damages and $88,059 in pre-

judgment interest. While this lawsuit was pending, Mayflower

terminated its agency arrangement with Alamo because of (1) Alamo’s

claim history, (2) its lack of qualified drivers, (3) its then

current debit balance with Mayflower for $55,000, and (4) the

repossession of some of Alamo’s equipment.

Hoping to shield itself from liability, Mayflower reached a

tentative settlement with the Duerrmeyers. Under the terms of the

settlement, the Duerrmeyers agreed to release their judgment

against Alamo in return for a payment by Mayflower alone, with no

consideration from Alamo. Before the execution of this tentative

settlement, however, Alamo filed for bankruptcy. Mayflower then

filed a motion with the bankruptcy court seeking approval of the

settlement. For reasons unapparent on appeal, the bankruptcy court

2 denied Mayflower’s motion. Shortly thereafter, Mayflower purchased

the Duerrmeyers’ judgment against Alamo. As of today, only

Mayflower has a judgment pending against Alamo. It is noteworthy

that Mayflower has not made any attempt to enforce this judgment.

On April 17, 2001, Alamo filed suit against Mayflower in Texas

state court for (1) wrongful termination of its agency agreement

and (2) breach of contract based on Mayflower’s refusal to

indemnify Alamo in the Duerrmeyers’ lawsuit. Mayflower removed the

case to federal court. On Mayflower’s motion, the district court

compelled arbitration.

Mayflower won in arbitration. The arbitration panel found

that Alamo’s financial situation and performance history warranted

the termination of the agency relationship. The district court

confirmed the arbitration award and entered a take-nothing

judgment. Alamo filed a motion for a new trial and/or

reconsideration, arguing that the arbitrators had not properly

considered its indemnification claim against Mayflower. The

district court denied Alamo’s motion and sua sponte dismissed the

indemnification claim. Alamo now appeals.

II

We first consider whether the arbitration clause in the agency

agreement is enforceable.

3 We review the grant or denial of a motion to compel

arbitration de novo. Webb v. Investacorp, Inc., 89 F.3d 252 (5th

Cir. 1996).

Through the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et

seq., Congress set forth a strong federal policy in favor of

arbitration. See Moses H. Cone Memorial Hosp. v. Mercury Const.

Corp., 460 U.S. 1, 24 (1983). The FAA provides that arbitration

agreements "shall be valid, irrevocable, and enforceable, save upon

such grounds that exist at law or in equity for the revocation of

any contract." 9 U.S.C. § 2.

A court deciding whether to compel arbitration engages in a

two-step inquiry. First, the court asks whether the parties

agreed to arbitrate the particular dispute. Second, the court

decides “whether legal constraints external to the parties’

agreement” preclude the arbitration of the dispute. Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627

(1985). At issue here is the district court’s resolution of the

first step in this two-step inquiry.

In determining whether there exists an agreement to arbitrate,

courts “generally . . . should apply ordinary state-law principles

that govern the formation of contracts." First Options of Chicago,

Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Under the FAA,

“applicable [state-law] contract defenses, such as fraud, duress,

or unconscionability, may be applied to invalidate arbitration

4 agreements without contravening [the FAA].” Doctor’s Assocs., Inc.

v. Casarotto, 517 U.S. 681, 685 (1996).

Here, the contract clearly indicates that the parties agreed

that arbitration would govern any dispute arising out of the

termination of the Mayflower-Alamo agency agreement. Alamo argues

that this arbitration clause is nonetheless unenforceable because

(1) it allows for limited discovery and (2) it entitles Mayflower

to “virtual summary judgment.”

We construe Alamo’s first argument in terms of

unconscionability; that is, because the arbitration clause allows

for limited discovery, it is unconscionable and hence unenforceable

under Texas law.

An unconscionable contract “is unfair because of its overall

one-sidedness or the gross one-sidedness of one of its terms."

Pony Exp. Courier Corp. v. Morris, 921 S.W.2d 817, 821

(Tex.App.--San Antonio 1996, no writ). Although contracts in Texas

can be unconscionable for either substantive or procedural reasons,

Alamo makes only a substantive unconscionability argument here.

Substantive unconscionability refers to “the entire atmosphere in

which the agreement was made; the alternatives, if any, available

to the parties at the time the contract was made; the

‘nonbargaining ability’ of one party; whether the contract was

illegal or against public policy; and whether the contract was

5 oppressive or unreasonable." In re Turner Brothers Trucking Co.,

Inc., 8 S.W.3d 370 (Tex.App.--Texarkana 1999, no pet.).

In this case, the lack of discovery during the arbitration was

Alamo’s own choice. Alamo did not request discovery before or

during arbitration. The arbitration clause does not prohibit

discovery. Instead, the clause simply does not provide for

discovery, leaving the issue in the hands of the arbitration panel.

Nothing about the clause is oppressive or unreasonable: The

clause, for example, does not limit Alamo’s discovery while

granting Mayflower unlimited discovery. Under the clause, each

party selects one of the two arbitrators who will rule on discovery

issues. In short, the clause does not reflect a lack of bargaining

power on the part of Alamo or a totally one-sided bargain. We thus

hold that the failure to provide expressly for discovery does not

render the arbitration clause unconscionable under Texas law.

As we have said, Alamo also argues that the arbitration clause

is unenforceable because it entitles Mayflower to “virtual summary

judgment.” In making this argument, Alamo confuses two different

clauses in the agency agreement –- the arbitration clause and the

termination clause. The termination clause states that “[i]t is

agreed and understood that any of the following reasons, without

further showing, and without limiting the Company thereto, shall be

a good and sufficient reason for cancellation by [Mayflower].”

(emphasis added). The termination clause then lists several

6 possible reasons for termination, including “[t]he failure or

apparent failure of the Agent to meet his financial obligations to

[Mayflower].” It is undisputed that Alamo failed to meet its

financial obligations to Mayflower. Before termination of the

agency agreement, Alamo had a growing debit balance with Mayflower

and a high claim ratio. Despite repeated warnings from Mayflower,

Alamo made no attempt to address these financial concerns. As a

consequence, the termination clause allowed Mayflower to terminate

the agency agreement “without any further showing.” The

termination clause -- not the arbitration clause -- granted

Mayflower “virtual summary judgment” in this case. Alamo does not

argue the termination clause is unenforceable under Texas law.

Alamo has thus waived any argument to this effect. See Applewhite

v. Reichhold Chemicals, Inc., 67 F.3d 571, 573 (5th Cir. 1995).

Furthermore, Alamo does not indicate why, even if the language of

the termination clause is unmerciful, the termination clause of the

contract renders the arbitration clause unenforceable.

Accordingly, the district court properly rejected this argument.

For the aforementioned reasons, we conclude that the

arbitration clause was enforceable under Texas law. The district

court therefore did not err in compelling arbitration or confirming

the arbitration award.

7 III

As we previously stated, the district court, sua sponte,

dismissed Alamo’s indemnification claim. We assume this dismissal

was with prejudice. See Fernandez-Montes v. Allied Pilots Ass’n,

987 F.2d 278, 284 n.8 (5th Cir. 1993) (“[I]t is well established

that a dismissal is presumed to be with prejudice unless the order

explicitly states otherwise.”). Because Mayflower holds an

enforceable judgment against Alamo, this dismissal was unwarranted

under state law. See Tubb v. Bartlett, 862 S.W.2d 740, 750

(Tex.App.-El Paso 1993, rehearing denied, writ denied) (“In the

case of a promise to indemnify against liability, a cause of action

accrues to the indemnitee only when the liability has become fixed

and certain, as by rendition of a judgment.”). Accordingly, we

reverse the district court on this issue and remand for the entry

of a dismissal without prejudice.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.