IN RE STANDARD MEAT COMPANY, L.P., Relator

Writ of Mandamus Conditionally Granted, Opinion issued March 9, 2007
 
 
 
In The
Court of Appeals
Fifth District of Texas at Dallas
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No. 05-06-01470-CV
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IN RE STANDARD MEAT COMPANY, L.P., Relator
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Original Proceeding from the County Court at Law No. 4
Dallas County, Texas
Trial Court Cause No. cc-06-02047-d
 
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MEMORANDUM OPINION
 
Before Justices Moseley, Bridges, and Francis
Opinion by Justice Francis
 
        Relator Standard Meat Co., L.P. seeks a writ of mandamus ordering the trial court to vacate its order denying a motion to compel arbitration. For the reasons that follow, we conditionally grant relator's petition.
        The real party in interest, Adriana Chagoya, was an employee of the Standard Meat Company (SMC). As a part of the job application and orientation process, Chagoya voluntarily signed two arbitration agreements, one dated January 14, 2004 and another dated February 3, 2004. Chagoya sued SMC, a nonsubscriber to the worker's compensation system, for negligence, negligence per se, and gross negligence/malice claims for injuries that allegedly occurred while working on the food assembly line. SMC filed a motion to compel arbitration and motion to stay litigation proceedings. In her response and during the hearing on the motion to compel, Chagoya argued that the McCarran-Ferguson Act (MFA) prevented the enforcement of an arbitration agreement under the Federal Arbitration Act (FAA) because arbitration under the FAA would invalidate, impair, or supersede the rights and protections granted to Chagoya under section 406.033 of the Texas Labor Code (common-law defenses) and section 171.002 of the Texas Civil Practices and Remedies Code (the Texas Arbitration Act). Additionally, Chagoya argued that the arbitration agreement is unconscionable on several grounds. The trial court denied the motion to compel.
        SMC brought this original proceeding, arguing the trial court abused its discretion in refusing to order arbitration. This Court directed real party Chagoya to file a response, which she ultimately did after seeking weeks of extensions. Thereafter, because the trial judge who denied arbitration was no longer in office, this Court abated proceedings and remanded for the successor judge, the Honorable Ken Tapscott, to reconsider the motion. See Tex. R. App. P. 7.2(b). We directed Judge Tapscott to file a certified copy of his order on reconsideration within thirty days of the January 9, 2007 order. Judge Tapscott, however, did not respond to our order within thirty days. Indeed, Judge Tapscott has not responded to date. Because he did not respond to our order, we conclude Judge Tapscott has reconsidered and ratified the order denying arbitration. So, we vacated our order of abatement and reinstated the petition for writ of mandamus.
        In its petition, SMC argues the trial court abused its discretion in denying its motion because (1) the MFA does not reverse-preempt the FAA and (2) the arbitration agreement is neither procedurally or substantively unconscionable.
        A party seeking to compel arbitration by mandamus must first establish that an agreement subject to the FAA exists. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). Once the party establishes existence of the agreement, he must then show that the claims asserted are within the scope of the agreement. Id. Federal policy favors arbitration, therefore, a presumption exists favoring agreements to arbitrate under the FAA; any doubts about the agreement's scope are resolved in favor of arbitration. Id. Once the movant shows a valid agreement exists that governs the dispute, the burden shifts to the opposing party to present evidence of a defense to enforcing the agreement. In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 549 (Tex. 2002). Absent a defense to enforcing the arbitration agreement, the trial court has no discretion but to compel arbitration and stay its proceedings once the existence and application of the agreement has been shown. Id. Mandamus is appropriate to review a trial court's denial of a motion to compel arbitration under the FAA. In re D. Wilson Constr. Co. 196 S.W.3d 774, 780-81 (Tex. 2006).
        In this case, relator admitted into evidence two documents: the January 14, 2004 “Standard Meat Company, L.P. Conflict Resolution Agreement” and the February 3, 2004 “Conflict Resolution Program with Arbitration Employee Acknowledgment and Agreement.” Both documents were signed by Chagoya and both provide, in conspicuous language, that all employment-related disputes with SMC, including claims for job-related injuries, are subject to arbitration. In addition, the February 3 agreement specifically provides the Federal Arbitration Act governs.
        In addition to the two agreements, SMC also offered the affidavit of its Human Resource Manager Laura Garcia, who stated that SMC is a business engaged in interstate commerce. During the hearing on the motion to compel, counsel for Chagoya stipulated that Garcia's statement was competent and sufficient evidence establishing that SMC engages in interstate commerce. The evidence in the record before us proves the existence of a valid agreement to arbitrate under the FAA and that Chagoya's claims fall within the scope of the agreement. Although Chagoya now argues the FAA does not apply to this case, we decline to consider this complaint given her stipulation below and because she raised no complaint below. Because relator established the existence of a valid arbitration agreement encompassing the dispute, the burden shifted to Chagoya to prove the agreement is unenforceable. We begin with her arguments in the trial court on reverse-preemption.
        Chagoya argued to the trial court that the MFA reverse-preempted the application of the FAA in her case because arbitration under the FAA would invalidate, impair, or supersede the rights and protections granted to her under the labor code and the Texas Arbitration Act (TAA). During the hearing, the trial court orally ruled that the MFA “reverse preempts” the FAA and denied SMC's motion to compel arbitration. In its petition, SMC asserts the trial court abused its discretion in ruling reverse preemption exists because all three of the requirements of reverse preemption have not been met. We agree.
        In response to the United States Supreme Court decision, United Sates v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944), holding that an insurance company was subject to antitrust laws because it was engaged in interstate commerce, Congress passed the MFA to allay fears that state power to tax and regulate the insurance industry was in jeopardy. U.S. Dep't of Treasury v. Fabe, 508 U.S. 491, 499-500, (1993).
        Section 1012 of the MFA provides, in part, as follows:
 
        (a) State regulation
 
 
 
 
 
The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
 
 
 
 
        (b) Federal regulation
 
 
 
 
 
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance . . . .
 
 
15 U.S.C. § 1012.         The Supreme Court has adopted a three-part test to determine if the MFA precludes the application of a federal statute to preempt state insurance law. Lovilia Coal Co. v. Williams, 143 F.3d 317, 324 (7th Cir. 1998). Under this test, the MFA precludes preemption if: (1) the federal statute at issue does not “specifically relat[e] to the business of insurance”; (2) the state statute at issue was “enacted for the purpose of regulating the business of insurance”; and (3) the application of federal statute would “invalidate, impair, or supersede” the state statute. Id.(citing Fabe, 508 U.S. 491, 500-01 (1993)). All three factors must be satisfied for the MFA to preclude the application of a given federal statute. Id.
        First, with respect to the labor code allegation, even if we assumed the statute was “enacted for the purpose of regulating the business of insurance,” which we do not, Chagoya failed to make any argument in the trial court or in this Court as to how application of the FAA would “invalidate, impair, or supercede” the statute. Without a showing of inconsistency with the FAA, the state law is not preempted or invalidated. Therefore, as it regards the labor code provision, there can be no reverse preemption. See In re Autotainment Partners Ltd. P'ship, 183 S.W.3d 532 (Tex. App.-Houston [14th Dist.] 2006, orig. proceeding).
        Second, with respect to her contention that the TAA is reverse-preempted, Chagoya made no argument in the trial court or in this Court as to how the TAA is in the business of regulating insurance. Moreover, Chagoya contends that the TAA is inconsistent with the FAA because the TAA requires the signature of a party's counsel to an arbitration agreement in personal injury cases and the FAA does not. However, that very inconsistency has been found to support the preemption of the TAA by the FAA. Recently, the supreme court stated that the TAA is preempted by the FAA because the TAA's additional requirement of the signature of a party's counsel to an arbitration agreement in a personal injury case interferes with the enforceability of the FAA arbitration agreement. In re D.Wilson Const. Co., 196 S.W.3d 774, 780 (Tex. 2006) (citing In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005)). Under the supremacy clause of the United States Constitution, the FAA preempts all otherwise applicable state laws to the extent they are inconsistent with that Act. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992). We conclude the FAA is not reverse-preempted because of any inconsistency with the TAA.
        SMC next argues the trial court abused its discretion in denying arbitration on the ground that the arbitration agreement was unconscionable. Chagoya made several arguments in the trial court as to why the arbitration agreement was both procedurally and substantively unconscionable. We will address all arguments made by Chagoya in the trial court that have been reasserted before this Court.
        Courts may consider both procedural and substantive unconscionability of an arbitration clause in evaluating the validity of an arbitration provision. In re Halliburton, 80 S.W.3d 566, 572 (Tex. 2002)(orig.proceeding). Accordingly, we review both.
        Chagoya argued before the trial court that the arbitration agreement was unconscionable because it required her to bear a great financial burden for travel expenses, a portion of the costs of arbitration, her own attorney's fees, and the expense of record production. In this case, the company has a fee-splitting arrangement requiring (1) the arbitration to take place within the State, (2) the employee to pay an application fee of $75, (3) the company to pay 100% of the filing and administrative fees for claims up to $75,000, and an equivalent amount for claims in excess of $75,000, (4) the employee to pay 25% of the costs of the proceeding, (5) the company to pay the entire costs of the stenographic record and (6) each party to pay its own attorney's fees. Such a fee- splitting provision contained in an arbitration agreement is not, by itself, unconscionable. See In re Luna, 175 S.W.3d 315, 320-321 (Tex. App.-Houston [1st Dist.] 2004, orig. proceeding); Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 822 (Tex. App.-San Antonio 1996, no pet.). Here, Chagoya brought no evidence to the trial court showing that the expenses are unconscionable in her situation. See Pony Express Courier Corp., 921 S.W.2d at 822.
        Chagoya next argued that the agreement was unconscionable because her remedy was limited to an award of $50,000. In its petition, SMC asserts that Chagoya references a paragraph in the arbitration agreement that is missing the proper caption. SMC stipulated that the complained-of provision, found on page 13 of the Arbitration Submission Agreement, does not and will not apply to her state tort law claim described in section 406.033 of the labor code. Given SMC's express stipulation, we need not address the complaint.
        Also Chagoya complained that limiting the time period to one year to give notice of her intent to arbitrate is unconscionable. We note that it is Chagoya that is attempting to avoid arbitration. Regardless, the Texas Supreme Court has allowed the statute of limitations to be modified in an arbitration agreement involving a claim of wrongful discharge. See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996) (acknowledging that parties' arbitration agreement shortened statute of limitations to 180 days). In this case, the one-year period applies to both parties and the agreement allows the arbitrator to determine the appropriate limitations period in a pre- arbitration hearing, if the time limitation is unenforceable because of applicable statute or caselaw.         Chagoya's remaining complaints of unconscionability also fail. She complained that the arbitration agreement limits her to discovery under the Texas Rules of Civil Procedure. Such rules are used by all litigants in state court, and an agreement requiring discovery under the laws of the state is not unconscionable. She complained the notice requirement is not satisfied. As we have already stated, the evidence shows that Chagoya had notice of the arbitration policy and that she signed a valid arbitration agreement including conspicuous language regarding the submission of employment-related disputes to arbitration. Finally, she complained the agreement is unconscionable because it does not provide for judicial review before a state court of appeals. In this case, evidence shows that arbitration is proper under the FAA. The FAA provides for judicial review of the award. See 9 U.S.C. §§ 10, 16.
        The record reflects that the trial court did not consider the arbitration agreement to be unconscionable. Likewise, we conclude the arbitration agreement, whether considered as a whole or in its separate provisions, is not unconscionable. Chagoya failed to meet her burden to establish a defense to enforcing the arbitration agreement. Consequently, the trial court had no discretion to deny the motion to compel arbitration. In re J.D Edwards World Solutions Co., 87 S.W.3d at 549.
        Based on the Court's opinion of this date, we conditionally grant SMC's petition for writ of mandamus. We ORDER the trial court to (1) vacate its August 25, 2006 Order Denying Defendant's Motion to Compel Arbitration; (2) enter an order granting Standard Meat Company's motion to compel arbitration in trial cause no. cc-06-02047-d, styled Adriana Chagoya v. Standard Meat Company, L.P.; and (3) send a certified copy of the order vacating the above-referenced order and granting Standard Meat's motion to compel arbitration to this Court within (15) fifteen days of the date of this opinion.
        The writ of mandamus will issue only if the trial court fails to comply with this Court's opinion and order.
 
 
                                                          
                                                          MOLLY FRANCIS
                                                          JUSTICE
 
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