ACCEPTED 04-14-00829-CV FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS 2/9/2015 2:26:56 PM KEITH HOTTLE CLERK
ORAL ARGUMENT REQUESTED FILED IN No. 04-14-00829-CV 4th COURT OF APPEALS SAN ANTONIO, TEXAS 02/9/2015 2:26:56 PM IN THE COURT OF APPEALS KEITH E. HOTTLE Clerk FOR THE FOURTH JUDICIAL DISTRICT OF TEXAS AT SAN ANTONIO
Western Rim Property Services, Inc., Appellant,
v.
Paula Bazan-Garcia, Appellee.
ON APPEAL FROM THE COUNTY COURT AT LAW NO. CC# 03 OF BEXAR COUNTY, TEXAS, CAUSE NO. 2014CV01064
APPELLANT’S REPLY BRIEF
BAKER BOTTS L.L.P. BAKER BOTTS L.L.P. Jennifer M. Trulock Stephanie F. Cagniart State Bar No. 90001515 State Bar No. 24079786 jennifer.trulock@bakerbotts.com stephanie.cagniart@bakerbotts.com 2001 Ross Avenue, Suite 600 98 San Jacinto Boulevard, Suite 1500 Dallas, Texas 75201-2980 Austin, Texas 78701-4078 (214) 953-6500 (512) 322-2500 (214) 953-6503 (Facsimile) (512) 322-2501 (Facsimile)
Attorneys for Appellant Western Rim Property Services, Inc. Table of Contents Table of Contents Page
Table of Contents ....................................................................................................... i
Summary of the Argument.........................................................................................1
Argument....................................................................................................................2
I. The AAA Rules are a publicly available authority that can be considered by this Court. ....................................................................... 2 II. The delegation clauses in the parties’ arbitration agreements are enforceable, and require the Court to send Bazan-Garcia’s unconscionability defense to arbitration. .............................................. 6 A. Bazan-Garcia has waived any argument that the delegation clauses are unconscionable. ...................................... 7
B. Bazan-Garcia’s claim that the arbitration agreements’ cost and venue provisions make the delegation clause unconscionable is directly contradicted by the AAA Rules............................................................................................ 9
C. Bazan-Garcia’s claim that arbitrating her unconscionability defense would be prohibitively expensive is not supported by any evidence in the record........ 12
III. Arbitration under the AAA Rules is not unconscionable. .................. 15
IV. Even if the AAA Rules do not apply to this appeal, Bazan- Garcia is bound by her arbitration agreements because she has failed to prove those agreements are unconscionable. ........................ 17 A. Bazan-Garcia cannot rely on prior AAA invoices to prove that the arbitration under the Employee Handbook is unconscionable, because she has not shown that arbitration will be conducted by the AAA. ............................... 17
B. Bazan-Garcia cannot rely on AAA invoices to prove that arbitration under the Employee Handbook is
i unconscionable if this Court is barred from considering the AAA Rules. ......................................................................... 20
C. Bazan-Garcia cannot prove that the Employee Handbook’s arbitration agreement is unconscionable because she has not shown that a less expensive arbitration alternative is unavailable to her............................... 22 D. Bazan-Garcia cannot prove that arbitration under the Arbitration Agreement is unconscionable because she has not presented any evidence showing how much it would cost to travel to Dallas County. ................................................. 23
V. The challenged provisions do not constitute the “essential purpose” of the parties’ agreements, and may be severed from the agreements. .................................................................................... 24
Conclusion and Prayer for Relief.............................................................................25
Certificate of Compliance ........................................................................................27 Certificate of Service ...............................................................................................27
ii TABLE OF AUTHORITIES
Page(s) CASES Aspen Tech., Inc. v. Shasha, 253 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2008, no pet.) .......18, 19, 20
Caballero v. Contreras, No. 13-10-00150-CV, 2010 WL 3420527 (Tex. App.—Corpus Christi Aug. 31, 2010, no pet.) ....................................................................................... 12
Coon v. Umphrey, 09-09-00264-CV, 2009 WL 3030354 (Tex. App.—Beaumont Sept. 24, 2009, pet. dism’d) ................................................................................................. 4
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008)................................................................................... 7
Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) ......................................................................15, 18, 19, 20, 23 In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883 (Tex. 2010) ..........................................................3, 4, 20, 21, 22 In re Poly-America, 262 S.W.3d 337 (Tex. 2008) ............................................................11, 12, 17, 24
John M. O’Quinn, P.C. v. Wood, 12-06-001510CV, 2006 WL 3735617 (Tex. App.—Tyler Dec. 20, 2006) .......... 4
Mitchison v. Houston Ind. Sch. Dist., 803 S.W.2d 769 (Tex. App.—Houston [14th Dist.] 1991, writ denied) .............. 5
Nabors Drilling USA, LP v. Carpenter, 198 S.W.3d 240 (Tex. App.—San Antonio 2006, no pet.) .................................. 8
Perez v. Spring Branch Indep. Sch. Dist., 2011 WL 742601 (Tex. App.—Houston [14th Dist.] Mar. 3, 2011, pet. denied)................................................................................................................... 5
Rent-A-Center, West v. Jackson, 561 U.S. 63 (2010) ......................................................................................7, 9, 13
iii Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014) ........................................................................24, 25 Winslow v. D.R. Horton America’s Builder, 04-12-00376-CV, 2013 WL 2368300 (Tex. App.—San Antonio May 29, 2013, no pet.) ........................................................................................................ 4
OTHER AUTHORITIES AAA Employment Rules ..................................................................................passim Tex. R. App. P. 38.1(k)(1)(C) .................................................................................... 3
iv SUMMARY OF THE ARGUMENT Bazan-Garcia bases her Response on one central claim: that this Court
cannot consider the Employment Rules of the American Arbitration Association
(“AAA Rules”) because a copy of those rules was not included in the clerk’s
record. Her reasons for making this argument are easy to understand. If the AAA
Rules apply, then the Court must send all of Bazan-Garcia’s claims—including her
unconscionability defense—to arbitration pursuant to the rules’ delegation clause.
The AAA Rules also defeat Bazan-Garcia’s unconscionability defense on the
merits, because they supersede all three provisions that she contends make the
parties’ agreements unenforceable.
Bazan-Garcia cannot escape her arbitration agreements so easily. It is
well established that Texas courts can consider the publicly available AAA Rules,
regardless of whether they were formally entered into evidence. Any deviation
from that rule has no basis in the law, nor would it produce a fair result where both
parties have relied on those rules throughout the litigation.
Moreover, Bazan-Garcia is bound by her arbitration agreements even
if the AAA Rules do not apply in this appeal. Bazan-Garcia can only avoid her
agreements by presenting specific evidence that arbitration would be prohibitively
expensive. The AAA invoices that Bazan-Garcia has submitted to prove that the
Employee Handbook is unconscionable do not meet this burden, because Bazan-
1 Garcia has failed to show that the AAA would actually administer the arbitration
proceeding, that the AAA would charge similar fees as those shown on the
invoices, and that no cheaper arbitration alternatives are available. And Bazan-
Garcia has submitted no evidence showing her costs if the arbitration were held in
Dallas County, which is fatal to her claim that the Arbitration Agreement is
unconscionable.
Bazan-Garcia is bound by her agreements to arbitrate. WRPS
therefore requests that this Court reverse the trial court’s order, abate this litigation,
and compel arbitration of Bazan-Garcia’s claims.
ARGUMENT
I. The AAA Rules are a publicly available authority that can be considered by this Court. It is undisputed that the Employment Rules of the American
Arbitration Association (“AAA Rules”) govern both of the parties’ arbitration
agreements. See App. 3 (Arbitration Agreement), App. 13 (Employee Handbook).1
These rules are available to the public through the AAA’s website, see Opening Br.
at 2 n.2, and were relied on by both parties before the trial court, see CR at 25–28,
85–94; RR at 6–7, 10–12, 15. WRPS also included a copy of the AAA Rules in
the Appendix to its Opening Brief, as required by the Texas Rules of Appellate
1 The Clerk’s Record is referred to herein as “CR,” the Reporter’s Record as “RR,” the Opening Brief filed by WRPS on Dec. 24, 2014 as “Opening Br.,” the Appendix to the Opening Br. as “App.,” and the Response Brief filed by Bazan-Garcia on January 20, 2015 as “Resp. Br.”
2 Procedure. See App. at 14–65; Tex. R. App. P. 38.1(k)(1)(C) (appendix must
include “the text of any rule . . . on which the argument is based”). Despite this,
and for the first time on appeal, Bazan-Garcia claims that this Court cannot
consider the AAA Rules in resolving the parties’ dispute, because “WRPS did not
attach the AAA Employment Rules to its Motion to Compel and did not introduce
the AAA Employment Rules as an exhibit at the hearing on its Motion to Compel
Arbitration.” Resp. Br. at 11.
Bazan-Garcia is wrong. The AAA Rules are not evidence; they are a
publicly accessible authority. Consequently, Texas courts can apply those rules
regardless of whether they were formally introduced into evidence. The Texas
Supreme Court, for example, did precisely that in In re Olshan Found. Repair Co.,
LLC, 328 S.W.3d 883 (Tex. 2010). Like Bazan-Garcia, the respondents in Olshan
claimed that the appellate court could not consider the AAA Commercial
Arbitration Rules because they had not been formally introduced into evidence.
See Resp. to Pet. for Writ of Mandamus, 2009 WL 2388979, at *9 (filed July 16,
2009); Tingdale’s Merits Br., 2009 WL 4764118, at *12 (filed Nov. 16, 2009).
Olshan countered that because the AAA Rules were incorporated into the parties’
agreement, and “easily verifiable by reference to the AAA website, a source whose
accuracy cannot reasonably be questioned,” they were properly before the Court.
Olshan’s Reply to Tingdale’s Merits Br., 2009 WL 5251087, at *8 n.8 (filed Dec.
3 21, 2009) (collecting cases). The Supreme Court agreed with Olshan, analyzing
the AAA Rules in detail in its opinion and ultimately ruling in Olshan’s favor. See
Olshan, 328 S.W.3d at 895–96.
Similarly, in In re Champion Technologies, Inc., Champion did not
introduce a copy of the AAA Rules into evidence before the trial court. 222
S.W.3d 127, 133 n.6 (Tex. App.—Eastland 2005, pet. denied). On appeal,
Champion attached a copy of the rules to its brief, which petitioners moved to
strike as an improper attempt to introduce evidence on appeal. See id. The
Eleventh Court of Appeals denied the motion, explaining:
The [parties’ agreement] incorporates the rules of the AAA as a part of its terms. The rules and procedures are readily available via the internet. Relators’ act of providing a copy of these rules to the court is similar to a party attaching a copy of a statute or regulation for the court’s benefit.
Id. This Court and other Texas courts of appeals also routinely cite the AAA Rules
just as they would any other authority, regardless of whether the rules were
included in the clerk’s record. See, e.g., Winslow v. D.R. Horton America’s
Builder, 04-12-00376-CV, 2013 WL 2368300, at *1 n.3–5 (Tex. App.—San
Antonio May 29, 2013, no pet.); Coon v. Umphrey, 09-09-00264-CV, 2009 WL
3030354, at *4 n.2 (Tex. App.—Beaumont Sept. 24, 2009, pet. dism’d); John M.
O’Quinn, P.C. v. Wood, 12-06-001510CV, 2006 WL 3735617, at *1 n.2 (Tex.
App.—Tyler Dec. 20, 2006).
4 The two cases that Bazan-Garcia relies on in her Response are not to
the contrary. Neither of the cited cases involved the AAA Rules or similar,
publicly available authorities. Instead, they are instances where a court of appeals
refused to consider a factual record that was not properly submitted as part of the
record on appeal. See Resp. at 11 (citing Mitchison v. Houston Ind. Sch. Dist., 803
S.W.2d 769, 771 (Tex. App.—Houston [14th Dist.] 1991, writ denied) (holding the
court of appeals could not consider the appellant’s second “request for findings of
facts and conclusions of law” that was filed with the trial court because appellant
did not arrange for a copy of the request to be included in the clerk’s record); Perez
v. Spring Branch Indep. Sch. Dist., 2011 WL 742601 (Tex. App.—Houston [14th
Dist.] Mar. 3, 2011, pet. denied) (holding the court of appeals could not review
evidentiary rulings made during a bench trial because appellant failed to pay for
and provide a copy of the reporter’s record to the appellate court)). Because
WRPS is not seeking to introduce any such document into the appellate record,
these cases are irrelevant.
Bazan-Garcia’s attempt to avoid the AAA Rules is not only legally
unsupported, it is puzzling in light of her actions before the trial court. WRPS
cited and relied on the AAA Rules in its Motion to Compel Arbitration. See CR
25–28. In turn, Bazan-Garcia based her entire response on the claim that
arbitration under the AAA Rules would be prohibitively expensive, and on an
5 affidavit from her attorney detailing his experience with the AAA rules. See CR at
81, 85–94; see also Resp. Br. at 4 (claiming Bazan-Garcia proved the arbitration
agreement was unconscionable through “three AAA invoices from nearly identical
employment cases that [her counsel] litigated under AAA rules”). At the hearing
on its motion, WRPS discussed several AAA Rules in detail and provided copies
of those rules to the court, just as counsel for both parties provided copies of key
cases. See RR at 6–7 (discussing AAA Rules’ delegation clause); id. at 10–12
(discussing delegation clause and AAA Rules governing costs, discovery and
venue); id. at 15 (discussing process of arbitrating the issue of unconscionability
under AAA Rules). Bazan-Garcia did not object, see id., nor has she claimed that
WRPS misstated or misrepresented the AAA Rules.
There is no legal or equitable justification for this Court to ignore the
publicly available rules that govern the parties’ arbitration agreements. The AAA
Rules therefore apply to this appeal.
II. The delegation clauses in the parties’ arbitration agreements are enforceable, and require the Court to send Bazan-Garcia’s unconscionability defense to arbitration. Bazan-Garcia’s only defense to arbitration is her claim that the
arbitration agreements are unconscionable. She does not dispute, however, that the
AAA Rules’ delegation clause gives the arbitrator—not the court—authority to
decide her unconscionability defense. See AAA Rule 6(a) (App. 30) (“The
6 arbitrator shall have the power to rule on his or her own jurisdiction, including any
objections to the existence, scope or validity of the arbitration agreement.”). That
concession resolves this appeal, because courts must enforce delegation clauses
under the Texas Arbitration Act. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51,
61 (Tex. 2008) (holding that the Court had “no discretion but to direct the court to
compel arbitration and stay [this] litigation” because the parties’ arbitration
agreement contained a delegation clause).
To avoid this result, Bazan-Garcia raises another new argument on
appeal. She claims the delegation clause itself is unconscionable, and therefore
unenforceable, because simply arbitrating her unconscionability defense under the
parties’ agreements would be prohibitively expensive. See Resp. at 34–39. This
untimely argument should be rejected by the Court because it is waived, directly
contradicted by the AAA Rules, and unsupported by any evidence in the record.
A. Bazan-Garcia has waived any argument that the delegation clauses are unconscionable. Bazan-Garcia admits that she did not challenge the arbitration
agreements’ delegation clauses in her Response to WRPS’s Motion to Compel
Arbitration. See Resp. at 38. She is therefore bound to them. See Rent-A-Center,
West v. Jackson, 561 U.S. 63, 73–76 (2010) (holding that a plaintiff who failed to
“make any arguments specific to the delegation provision” before the trial court
could not raise those arguments on appeal, and was bound to that provision).
7 On appeal, Bazan-Garcia protests that “no fault can be assigned” to
her for failing to challenge the delegation clauses below, because WRPS did not
introduce the AAA Rules into evidence. Resp. at 38. But WRPS was not required
to do so. See Section I, supra at 2–6. Moreover, WRPS discussed the delegation
clause at length in its Motion to Compel Arbitration, putting Bazan-Garcia on
notice that it was relying on that clause. See CR 25–28. Bazan-Garcia’s failure to
address this issue is therefore unexcused. See Nabors Drilling USA, LP v.
Carpenter, 198 S.W.3d 240, 249 (Tex. App.—San Antonio 2006, no pet.) (holding
that a party seeking to avoid an arbitration agreement can only rely on arguments
that it raised before the trial court).
In the alternative, Bazan-Garcia insists that she raised and preserved
her challenges to the delegation clauses at the hearing when her counsel stated:
“[Bazan-Garcia]’s going to have to go to Dallas to complain to the arbitrator
about [the arbitration agreements].” Resp. at 38 (quoting RR at 15) (emphasis in
Resp.). According to Bazan-Garcia, this statement and two other exchanges
between the judge and WRPS’s counsel prove that “the trial court also understood
that Bazan-Garcia was challenging the delegation clause because it required
Bazan-Garcia to incur prohibitive costs of first traveling to Dallas County, Texas to
challenge the rest of the agreement.” See Resp. at 38–39.
8 At most, these statements show that Bazan-Garcia preserved an
argument that the delegation clause in the Arbitration Agreement is unenforceable,
based on that agreement’s venue clause. See App. 3 (“Any arbitration relating to
any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.”). But the Arbitration Agreement is only one of the agreements at issue in
this appeal. The second agreement—the Employee Handbook that is incorporated
by reference into the Acknowledgement—does not have a venue clause. See App.
4, 13. Because, by her own admission, Bazan-Garcia failed to raise any timely
challenge to the Employee Handbook’s delegation clause, this Court must enforce
that clause and compel arbitration of Bazan-Garcia’s unconscionability defense.
See Rent-A-Center, 561 U.S. at 74.
B. Bazan-Garcia’s claim that the arbitration agreements’ cost and venue provisions make the delegation clause unconscionable is directly contradicted by the AAA Rules. Bazan-Garcia’s untimely challenges to the delegation clauses also fail
because they are directly contradicted by the AAA Rules, which control over any
contrary provisions in the parties’ arbitration agreements. See AAA Rule 1 (App.
28) (the arbitrator must apply the AAA Rules if “an adverse material inconsistency
exists between the arbitration agreement and these rules”).
First, Bazan-Garcia claims that the delegation clause in the Employee
Handbook is unconscionable because its cost-sharing provision allegedly requires
9 her to pay “half of the arbitrator’s fees for any hearing” on her unconscionability
defense. Resp. at 35–36. But under the AAA Rules, Bazan-Garcia will not pay
any of the arbitrator’s fees or hearing expenses. Instead, Bazan-Garcia will pay an
initial filing fee of $200, and WRPS will be responsible for paying all hearing fees
and all of the arbitrator’s fees and expenses. See Opening Br. at 26–27; AAA Rule
45 (App. 43); AAA Rule 48(i)–(iii) (App. 45–47). And if the filing fee causes her
“excessive hardship,” then Bazan-Garcia is permitted to request that the fee be
reduced or deferred. AAA Rule 43 (App. 43).
Bazan-Garcia’s Response never addresses the above AAA Rules on
fees, even though WRPS identified and discussed them in detail at the hearing on
its motion and in its Opening Brief. See RR at 10–11; Opening Br. at 26–28. Nor
does Bazan-Garcia contend that she cannot afford the $200 filing fee, which is less
than what she paid to file her claims in state court. See CR at 81. Her silence
impliedly concedes that this challenge to the Employee Handbook’s delegation
clause is without merit, and that arbitrating her unconscionability defense would
not be prohibitively expensive.
Second, Bazan-Garcia claims that the delegation clause in the
Arbitration Agreement is unconscionable because its venue clause allegedly
requires her to travel to Dallas County to arbitrate her unconscionability defense.
Resp. at 35–37. But under the AAA Rules, the unconscionability defense would
10 be addressed during the Management Conference, which is “conducted by
telephone conference call” unless the parties agree otherwise. AAA Rule 8 (App.
31). Bazan-Garcia will therefore not have to incur any travel expenses.
Furthermore, AAA Rule 10 empowers the arbitrator to choose the
locale of arbitration, “having regard for the contentions of the parties and the
circumstances of the arbitration.” AAA Rule 10 (App. 32). Thus, even if a non-
telephonic hearing was necessary to decide Bazan-Garcia’s unconscionability
defense, Bazan-Garcia could request a location other than Dallas County.2 This
rule defeats Bazan-Garcia’s challenge to the Arbitration Agreement, because the
Texas Supreme Court has expressly held that a provision that the arbitrator is
empowered to modify cannot be unconscionable. See In re Poly-America, 262
S.W.3d 337, 347 (Tex. 2008) (applying this rule to an agreement that “provide[d]
that the arbitrator may modify unconscionable terms”); see also Opening Br. at 29–
30 (discussing Poly-America, 262 S.W.3d at 347).
2 Bazan-Garcia suggests that during the hearing on WRPS’s Motion to Compel Arbitration, WRPS conceded that Bazan-Garcia would have to travel to Dallas to arbitrate her unconscionability defense. See Resp. at 39. This is not the case. In response to a question from the court regarding whether Bazan-Garcia would have to present her unconscionability defense to an arbitrator in Dallas, WRPS’s counsel responded: “They do have to ask the arbitrator in Dallas, unless the AAA decides the arbitration should not occur in Dallas.” RR at 11–12 (emphasis added). Bazan-Garcia selectively quotes this portion of the record, and omits the italicized phrase. Nothing in the AAA Rules or the Arbitration Agreement prevents either the arbitrability question from being resolved by telephonic conference or a request from Bazan- Garcia to change the venue.
11 In her response, Bazan-Garcia ignores Poly-America and insists that
WRPS cannot rely on this argument because “[c]ourts have expressly rejected this
same circular logic.” Resp. at 36. In support, she quotes a footnote from an
unpublished case in which the Thirteenth Court of Appeals stated that “it would
appear preferable” for such issues to “be submitted to, and decided by, the courts
as a gateway matter.” Resp. at 36–37 (quoting Caballero v. Contreras, No. 13-10-
00150-CV, 2010 WL 3420527, at *10 n.2 (Tex. App.—Corpus Christi Aug. 31,
2010, no pet.)). But this authority cannot supersede authority from the Texas
Supreme Court. Moreover, Bazan-Garcia conveniently omits the rest of that
footnote, in which the Caballero panel acknowledged Poly-America’s rule and that
the rule is binding on the courts of appeals. See id. Because Poly-America
forecloses Bazan-Garcia’s challenge to the Arbitration Agreement’s delegation
clause, Bazan-Garcia is bound to her agreement.
C. Bazan-Garcia’s claim that arbitrating her unconscionability defense would be prohibitively expensive is not supported by any evidence in the record. Finally, Bazan-Garcia’s untimely challenges to the delegation clauses
fail because she has not provided any evidence showing that arbitrating her
unconscionability defense under the Employee Handbook or the Arbitration
Agreement would be prohibitively expensive.
12 Before the trial court, Bazan-Garcia claimed that the arbitration
agreement in the Employee Handbook was unconscionable because its cost-sharing
provision allegedly requires her to split the costs of arbitration equally with WRPS.
See Resp. at 10. Bazan-Garcia estimated that arbitrating the merits of her claims
against WRPS could cost upwards of $20,000, based on invoices from three prior
AAA arbitrations, described as “labor cases . . . similar in nature, complexity, and
amount of witnesses as Ms. Bazan-Garcia’s case.” CR 85.
How much it would cost to arbitrate the merits of Bazan-Garcia’s
claims, however, has no relevance to whether the delegation clause is
unconscionable. The delegation clause requires Bazan-Garcia to submit her
unconscionability defense to the arbitrator. To avoid that clause, therefore, Bazan-
Garcia must show that arbitrating just her unconscionability defense would be
prohibitively expensive. Rent-A-Center, 561 U.S. at 74. The United States
Supreme Court has warned that this is a “difficult” standard to meet, because such
a proceeding is usually less complicated, less fact-intensive, and less lengthy than
arbitrating the actual merits of the parties’ underlying dispute. Id. (“[T]he
unfairness of the fee-splitting arrangement may be more difficult to establish for
the arbitration of enforceability [of the arbitration agreement] than for arbitration
of more complex and fact-related aspects of the alleged employment
discrimination.”).
13 Bazan-Garcia failed to introduce any evidence to meet this burden.
The three AAA invoices she submitted, for example, were for proceedings that
lasted 2 to 3 days each, involved testimony from witnesses and experts, and
required the arbitrator to decide the merits of all of the parties’ statutory and fact-
intensive employment claims. See CR 85–94. Any hearing on Bazan-Garcia’s
unconscionability defense, in contrast, would likely last an hour or less, involve a
smaller and much simpler set of issues, require little or no fact-finding, and only
require testimony from Bazan-Garcia herself. Because there is no evidence on the
costs of such a hearing, or even a showing that a hearing would be required,
Bazan-Garcia cannot prove that the Employee Handbook’s delegation clause is
Bazan-Garcia’s challenge to the Arbitration Agreement’s delegation
clause—that it would be prohibitively expensive to travel to Dallas to arbitrate her
unconscionability defense—is also unsupported by the evidence. Bazan-Garcia
submitted an affidavit to the trial court stating that arbitrating the merits of her
claims in Dallas would cause her to “incur substantial additional expenses in travel
and lodging.” CR 96–97. But this conclusory statement does not provide any
information regarding how much such travel would actually cost, much less prove
a likelihood that Bazan-Garcia could not pursue her claims if she were required to
incur those costs. Indeed, Bazan-Garcia’s affidavit is almost identical to testimony
14 that the U.S. Supreme Court found was inadequate to prove that an arbitration
agreement was unconscionable in Green Tree Fin. Corp.-Ala. v. Randolph. See
531 U.S. 79, 91 n.6 (2000) (discussing as insufficient plaintiff’s testimony “that
‘[a]rbitration costs are high and that she did not have the resources to arbitrate”).
This Court must submit Bazan-Garcia’s claims and her
unconscionability defense to arbitration pursuant to the delegation clauses in the
parties’ agreements. The Court does not need to decide the merits of Bazan-
Garcia’s challenges to those clauses, because she waived them by failing to raise
them before the trial court. Moreover, even if those claims were before this Court,
they are directly contradicted by the AAA Rules and unsupported by the record.
Both delegation clauses are therefore enforceable.
III. Arbitration under the AAA Rules is not unconscionable. If the Court determines that the AAA Rules apply in this appeal, but
holds that the agreements’ delegation clauses are unenforceable, then it will have
to decide the merits of Bazan-Garcia’s unconscionability defense—i.e., whether
arbitrating Bazan-Garcia’s claims against WRPS would be prohibitively expensive.
This defense fails, because the AAA Rules directly contradict all of the challenges
that Bazan-Garcia has raised against the Employee Handbook and the Arbitration
Agreement.
15 At the hearing on its Motion to Compel Arbitration and in its Opening
Brief, WRPS explained that the Employee Handbook agreement’s cost-sharing
provision is not unconscionable because the AAA Rules expressly limit Bazan-
Garcia’s arbitration costs. See RR at 10–11; Opening Br. at 26–28; see also AAA
Rule 1 (App. 28) (AAA Rules govern if “an adverse material inconsistency exists
between the arbitration agreement and these rules”). Under these rules, Bazan-
Garcia will be charged a $200 filing fee and any fees associated with her witnesses.
AAA Rule 45 (App. 43). In addition, she can ask for relief from any fees that
cause her “extreme hardship.” AAA Rule 43 (App. 43). WRPS, on the other
hand, is responsible for all hearing fees and for paying the arbitrator’s fees and
expenses. AAA Rules 48(i)–(iii) (App. 45–47). Bazan-Garcia has never disputed
WRPS’s interpretation of the rules, nor claimed that she cannot afford these
expenses. She therefore cannot show that arbitration under the Employee
Handbook would be prohibitively expensive.
Likewise, the venue and discovery-limitation provisions in the
Arbitration Agreement do not make the agreement unconscionable, because the
AAA Rules empower the arbitrator to modify both these provisions. See RR at 11
(discussing AAA Rules 9 and 10); Opening Br. at 30–31 (same). As explained in
Section II.B above, Bazan-Garcia’s claim that this Court can find these provisions
unconscionable despite these rules is directly foreclosed by the Texas Supreme
16 Court’s decision in Poly-America. See supra at 11–12 (discussing Poly-America,
262 S.W.3d at 347). Consequently, Bazan-Garcia also cannot show that arbitration
under the Arbitration Agreement would be unconscionable.
IV. Even if the AAA Rules do not apply to this appeal, Bazan-Garcia is bound by her arbitration agreements because she has failed to prove those agreements are unconscionable. Bazan-Garcia has staked this appeal on the hope that the Court will
ignore the AAA Rules. But that alone cannot relieve Bazan-Garcia of her
arbitration obligations. Instead, she must prove a likelihood that the excessive
costs of arbitration would prevent her from pursuing her claims, including by
identifying the organization or arbitrator who will conduct the proceeding,
establishing what the fees would be charged by that organization or arbitrator, and
demonstrating that no cheaper alternative is available to the parties. See Opening
Br. at 23–25. As WRPS pointed out in its Opening Brief, Bazan-Garcia has not
met any of these requirements, see id., and she fails to justify or excuse these
omissions in her Response. Consequently, regardless of whether the AAA Rules
apply in this appeal, the Court must compel arbitration of Bazan-Garcia’s claims.
A. Bazan-Garcia cannot rely on prior AAA invoices to prove that the arbitration under the Employee Handbook is unconscionable, because she has not shown that arbitration will be conducted by the AAA. The only evidence that Bazan-Garcia has submitted to prove that
arbitration under the Employee Handbook’s cost-sharing provision would be
17 prohibitively expensive are three invoices from allegedly “similar arbitrations”
conducted by the AAA. See CR 85–94. But the Employee Handbook does not
require that the arbitration be conducted by the AAA; instead, it only requires that
arbitration occur “under” the AAA Rules. See App. 13; see also Opening Br. at
23-25. Bazan-Garcia must therefore make a “factual showing that the AAA would
administer the arbitration” before she can rely on those invoices to prove her
unconscionability defense. Aspen Tech., Inc. v. Shasha, 253 S.W.3d 857, 864
(Tex. App.—Houston [14th Dist.] 2008, no pet.) (citing Green Tree, 531 U.S. at 90
n.6).
Bazan-Garcia has not made any such showing. On appeal, she tries to
avoid this requirement altogether by arguing that Shasha, one of the cases cited in
WRPS’s Opening Brief, stands for a different proposition: that “evidence of
expected AAA costs presented solely in the form of testimony [is] legally
insufficient.” Resp. at 26 (emphasis added); see also id. (quoting Shasha, 253
S.W.3d at 864 (“[T]estimony alone does not provide specific evidence as to
Shasha’s likely costs to arbitrate under the [arbitration] agreement.”). Because
Bazan-Garcia also submitted invoices from other arbitrations in support of her
unconscionability argument, she claims that Shasha supports her position. See id.
18 Bazan-Garcia’s argument misreads and misrepresents Shasha. After
reviewing an affidavit submitted by plaintiff’s attorney regarding how much
arbitration with the AAA would cost, the court stated:
this testimony alone does not provide specific evidence as to Shasha’s likely costs to arbitrate under the 2006 Agreement. Though Shasha’s counsel provides projected fees for filing with the AAA, AAA case service, and AAA administration, this projection is based on the premise that the AAA would administer the arbitration. However, the arbitration provision in the 2006 Agreement does not require that the AAA conduct or administer the arbitration; rather the provision states that arbitration shall be “in accordance with the [AAA Rules].” Under this language, the AAA may administer the arbitration, but the parties are not required to have the arbitration administered by the AAA.
253 S.W.3d at 864 (emphases added). In context, it is clear that the court of
appeals’ concern was not the testimonial nature of the evidence, but that Shasha
did not provide an adequate basis for assuming that these costs would be governed
by the AAA Rules’ fee schedule. See id.
This requirement has also been adopted by the United States Supreme
Court. In Green Tree, the Court explained that a plaintiff who failed to “make any
factual showing that the American Arbitration Association would conduct the
arbitration” could not rely on evidence of how much an AAA-administered
proceeding would cost to show that her arbitration agreement was unconscionable.
Green Tree, 531 U.S. at 90 n.6. And while the Texas Supreme Court has accepted
19 AAA invoices as some evidence of the costs of arbitration, it did so in a case where
the parties’ agreement specifically required them to submit their disputes to
“binding arbitration administered by the American Arbitration Association.”
Olshan, 328 S.W.3d at 887, 897 (emphasis added).
Bazan-Garcia has failed to make any “factual showing that the AAA
would administer the arbitration” under the parties’ agreement. See Shasha, 253
S.W.3d at 864. She therefore cannot prove, based solely on invoices from AAA-
administered arbitrations, that arbitration under the Employee Handbook would be
prohibitively expensive and unconscionable.3
B. Bazan-Garcia cannot rely on AAA invoices to prove that arbitration under the Employee Handbook is unconscionable if this Court is barred from considering the AAA Rules. In addition, if the Court is barred from considering the AAA Rules, as
Bazan-Garcia has argued in the Response, then Bazan-Garcia cannot rely on AAA
3 Bazan-Garcia attempts to flip the burden of proof by claiming that WRPS was required to show that arbitration “through an arbitration association other than the AAA, would be less expensive than an arbitration actually administered by AAA.” Resp. at 28. This argument was squarely rejected in Shasha. Like Bazan-Garcia, Shasha argued that his evidence regarding how much AAA arbitration would cost was sufficient to meet his burden of proof, because the other party failed to counter that evidence by showing that non-AAA arbitration would be more affordable. The court of appeals disagreed, explaining that even though the other party could have prevailed by submitting such evidence, “such proof is not necessary for Shasha to be required to make a factual showing that the AAA would administer the arbitration.” Aspen Tech., Inc. v. Shasha, 253 S.W.3d 857, 864 (Tex. App.—Houston [14th Dist.] 2008, no pet.). Bazan-Garcia’s argument is also contrary to Olshan, in which the Texas Supreme Court held that the party claiming arbitration would be prohibitively expensive has the burden of affirmatively proving that no cheaper arbitration alternatives were available under the parties’ agreement. See 328 S.W.3d at 897 (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 n.6 (2000)).
20 invoices to prove that arbitration under the Employee Handbook would be
The Texas Supreme Court’s opinion in Olshan is instructive. Like
Bazan-Garcia, the Olshan respondents claimed that arbitration would be
prohibitively expensive, and as evidence submitted several arbitration invoices
from allegedly “similar” AAA-administered arbitrations. 328 S.W.3d at 897.
Rather than relying solely on these invoices, the Supreme Court examined the
AAA Rules separately to determine, based on the rules’ fee schedule and the
amounts of the respondents’ claims, “how much [respondents] will be charged
under the AAA Rules.” Id. Without that information, the Supreme Court
explained, respondents could not meet their “burden to show the likelihood of
incurring excessive costs.” Id.
If Bazan-Garcia is correct and the AAA Rules cannot be considered
by the Court in this appeal, then Olshan is clear: Bazan-Garcia cannot meet her
heavy burden of proving that arbitration governed by those rules and fee schedule
would be prohibitively excessive and unconscionable. See Olshan, 328 S.W.3d at
897. She therefore cannot avoid her arbitration obligations under the Employee
Handbook.
21 C. Bazan-Garcia cannot prove that the Employee Handbook’s arbitration agreement is unconscionable because she has not shown that a less expensive arbitration alternative is unavailable to her. The Texas Supreme Court has intentionally set the bar high for
holding that an arbitration agreement is unconscionable, and has explained that a
party may not “avoid arbitration [by] assum[ing] the most expensive possible
scenario.” Olshan, 328 S.W.3d at 897. In Olshan, the Supreme Court explained
that to meet this burden, the party resisting arbitration must also show that no
cheaper alternative is available to the parties, such as by demonstrating it “made
any effort to reduce the likely charges through requests for fee waivers, pro bono,
arbitrators, or even simply requesting a one arbitrator panel.” Id.
WRPS specifically discussed this requirement in its Opening Brief
and pointed out that Bazan-Garcia had failed to make such a showing. See
Opening Br. at 25. In her response, Bazan-Garcia discusses Olshan, but
conspicuously omits any mention of this requirement. See Resp. at 27–30. For
this additional reason, Bazan-Garcia cannot prove that arbitrating her claims
against WRPS under the Employee Handbook would be unconscionable.
22 D. Bazan-Garcia cannot prove that arbitration under the Arbitration Agreement is unconscionable because she has not presented any evidence showing how much it would cost to travel to Dallas County. Bazan-Garcia also claims that arbitration under the Arbitration
Agreement would be unconscionable, on the grounds that she cannot afford the
costs of travel and lodging in Dallas County. See Resp. at 24–25. In support of
this claim, Bazan-Garcia submitted an affidavit stating that “if it is determined that
I must bring my lawsuit against my employer in Dallas County, Texas, I will incur
substantial additional expenses in travel and lodging, and I will probably not
continue with my claim.” CR 96.
As explained in Section II.C above, this conclusory statement is
inadequate to prove that the Arbitration Agreement is unconscionable. See supra
at 14–15 (discussing Green Tree, 531 U.S. at 90 n.6 (holding that plaintiff’s
testimony “that [a]rbitration costs are high and that she did not have to resources to
arbitrate” was inadequate to prove unconscionability)). For example, Bazan-
Garcia does not indicate the amount of those “substantial” expenses, identify what
type of transportation she would use to get to Dallas County, state how long she
would have to stay, or show that no cheaper alternatives are available to her.
Without this basic information, this Court cannot find that arbitration pursuant to
the Arbitration Agreement would be prohibitively expensive, or allow Bazan-
Garcia to escape her bargain with WRPS.
23 V. The challenged provisions do not constitute the “essential purpose” of the parties’ agreements, and may be severed from the agreements. Finally, if this Court concludes that any of the challenged provisions
in the Employee Handbook or Arbitration Agreement is unconscionable, then it
must sever that provision and enforce the remainder of the parties’ agreement. The
Court can only decline to do so if it concludes that the unconscionable provision
constitutes the arbitration agreement’s “essential purpose.” See Opening Br. at 32–
33 (discussing Poly-America, 262 S.W.3d at 360; Venture Cotton Co-op v.
Freeman, 435 S.W.3d 222, 230 (Tex. 2014)). In her Response, Bazan-Garcia
contends that the three challenged provisions are “integral” to the parties’
arbitration agreements because (1) the agreements do not contain a severability
clause, see Resp. at 40 (citing Poly-America, 262 S.W.3d at 360), and (2) WRPS
did not request severance from the trial court, see Resp. at 40–41.
First, “[i]n determining an agreement’s essential purpose, the issue is
‘whether or not parties would have entered into the agreement absent the
unenforceable provisions.’” Venture Cotton, 435 S.W.3d at 230 (quoting Poly-
America, 262 S.W.3d at 360). WRPS and Bazan-Garcia’s incorporation of the
AAA Rules in both the Arbitration Agreement and the Employee Handbook
demonstrate that none of the provisions challenged by Bazan-Garcia were
“essential” to those agreements. The AAA Rules not only supersede the
challenged provisions, they also give the arbitrator power to modify or remove
24 them. See AAA Rule 1 (App. 28). If these particular provisions were “essential”
to the agreements, then it is highly unlikely the parties would have given the
arbitrator such authority.
Second, and contrary to Bazan-Garcia’s suggestion, the Texas
Supreme Court has never held that the absence of a severability clause proves that
all of the agreement’s terms constitute its “essential purpose.” Instead, the
Supreme Court expressly held in Venture Cotton that a court of appeals is required
to sever an unconscionable provision from an arbitration agreement even when the
agreement has no severability clause, and even when that remedy was not
requested from the trial court. 435 S.W.3d at 230 (discussed in Opening Br. at 32).
Consequently, if this Court concludes that any provision in the parties’ arbitration
agreements is unenforceable, then it must sever that provision and enforce the
remainder of the agreements.
CONCLUSION AND PRAYER FOR RELIEF For the reasons set forth above, WRPS respectfully requests the Court
reverse the trial court’s Order denying WRPS’s motion to compel arbitration, and
direct the trial court to compel arbitration of all of Bazan-Garcia’s claims and abate
this litigation.
25 Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Jennifer M. Trulock Jennifer M. Trulock State Bar No. 90001515 2001 Ross Avenue, Suite 600 Dallas, Texas 75201 (214) 953-6500 Telephone (214) 953-6503 Facsimile jennifer.trulock@bakerbotts.com
Stephanie F. Cagniart State Bar No. 24079786 98 San Jacinto Boulevard, Suite 1500 Austin, Texas 78701-4078 (512) 322-2500 Telephone (512) 322-2501 Facsimile stephanie.cagniart@bakerbotts.com
ATTORNEYS FOR APPELLANT WESTERN RIM PROPERTY SERVICES, INC.
26 Certificate of Compliance This brief complies with the type-volume limitations of Tex. R. App. P. 9.4, as it contains 5,861 words, excluding the parts of the brief exempted by Rule 9.4(i)(1).
/s/ Stephanie F. Cagniart Stephanie F. Cagniart
Certificate of Service I hereby certify that on February 9, 2015, a copy of the foregoing was served by the Court’s CM/ECF electronic service and by electronic mail on the following parties:
Javier Espinoza Josue F. Garza The Espinoza Law Firm, PLLC 503 E. Ramsey, Ste. 103 San Antonio, Texas 78216 210-229-1302 (Facsimile) josue@espinozafirm.com