In re Dan Ledet and Living Centers of Texas, Inc. d/b/a Retama Manor Nursing Center/Laredo-South--Appeal from 341st Judicial District Court of Webb County

MEMORANDUM OPINION
No. 04-04-00411-CV

IN RE Dan LEDET and Living Centers of Texas, Inc.

d/b/a Retama Manor Nursing Center Laredo South

Original Mandamus Proceeding (1)

Opinion by: Karen Angelini, Justice

Sitting: Alma L. L pez, Chief Justice

Catherine Stone, Justice

Karen Angelini, Justice

Delivered and Filed: December 22, 2004

PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED

This mandamus proceeding arises out of a personal injury action filed by Ana Bustamante, individually and as next friend of her mentally incapacitated mother, Anselma Garza, against Dan Ledet and Living Centers of Texas, Inc. d/b/a Retama Manor Nursing Center Laredo South ("Retama"). Relators Ledet and Retama seek a writ of mandamus ordering respondent, the Honorable Elma Salinas Ender, to vacate her order of April 26, 2004, denying relators' motion to compel arbitration and enter an order dismissing the underlying cause or staying the underlying case pending arbitration. Because we conclude that relators are entitled to the relief sought, we conditionally grant the writ.

Background

Anselma Garza is an elderly lady suffering from Alzheimer's disease. On October 10, 2002, she was admitted to Retama Manor Nursing Center. Her son, Alejandro Garza, signed the admittance papers as the "responsible party." He also signed an arbitration agreement as her "legal representative." On May 28, 2003, during the evening shift, Anselma Garza was found lying naked on the floor of her room. She had fallen out of bed. The fall caused multiple fractures to Anselma's face and body. On August 28, 2003, Anselma's daughter, Ana Bustamante, brought suit individually and as next friend of Anselma Garza against Retama and Dan Ledet, Retama's administrator, for negligence.

On January 5, 2004, Retama and Ledet ("relators") filed a "Motion to Compel Arbitration and Dismiss, or, in the Alternative, Stay Proceedings." After a hearing, the trial court denied their motion to compel. Relators filed a motion to reconsider, which was also denied.

Standard of Review

When a trial court erroneously denies a party's motion to compel arbitration under the FAA, the movant has no adequate remedy at law and is entitled to a writ of mandamus. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). A party seeking to compel arbitration by mandamus must first establish the existence of an arbitration agreement subject to the FAA. Id. Once the movant establishes an agreement, the court must then determine whether the arbitration agreement covers the nonmovant's claims. Id. Because state and federal policies continue to favor arbitration, a presumption exists favoring agreements to arbitrate under the FAA, and courts must resolve any doubts about an arbitration agreement's scope in favor of arbitration. Id. Once the trial court concludes that the arbitration agreement encompasses the claims, and that the party opposing arbitration has failed to prove its defenses, the trial court has no discretion but to compel arbitration and stay its own proceedings. Id. at 753-54.

Discussion

According to Ana Bustamante, the arbitration agreement is not enforceable because (1) the arbitration agreement is not a contract evidencing a transaction involving interstate commerce, and as such, the Federal Arbitration Act does not apply, (2) no valid and enforceable arbitration agreement exists, and (3) the arbitration agreement is procedurally unconscionable. The trial court did not give any reasons why it denied the motion to compel arbitration.

A. Does the Federal Arbitration Act apply?

According to Ana Bustamante, because the arbitration agreement at issue does not involve interstate commerce, (2) it is not governed by the Federal Arbitration Act ("FAA"). The arbitration agreement, however, expressly provides for application of the FAA: "Intending to be legally bound, the parties expressly agree that this Agreement will be governed by the Federal Arbitration Act, 9 U.S.C. 1-16." When there is no express agreement to arbitrate under the FAA, a party may establish the applicability of the FAA by showing that the transaction affects or involves interstate commerce. In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.--Houston [1st Dist.] 2002, orig. proceeding). However, where there is an express agreement to arbitrate under the FAA, courts have upheld such choice-of-law provisions. Id.; see Volt Info. Sciences, Inv. v. Bd. of Trs., 489 U.S. 468, 478-79 (1989) (upholding choice of California law to govern arbitration although interstate commerce involved because applying federal law would have forced parties to arbitrate in manner contrary to their agreement); In re Alamo Lumber Co., 23 S.W.3d 577, 579 (Tex. App.--San Antonio 2000, orig. proceeding [leave denied]) (applying FAA because agreement expressly invokes FAA). Thus, when "the parties agree to arbitrate under the FAA, they are not required to establish that the transaction at issue involves or affects interstate commerce." In re Kellogg Brown & Root, 80 S.W.3d at 617. Accordingly, we need not consider Bustamante's argument that the agreement does not involve interstate commerce and as such, the FAA does not apply.

Having determined that the FAA applies because the agreement expressly provides as such, we need not consider Bustamante's argument that the agreement violates the Texas Arbitration Act ("TAA"). Under the Supremacy Clause of the United States Constitution, the FAA preempts otherwise applicable state laws, including the TAA. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); see In re Media Arts Group, Inc., 116 S.W.3d 900, 906 (Tex. App.--Houston [14th Dist.] 2003, orig. proceeding [leave denied]) ("FAA preempts application of state law that would render an existing arbitration agreement unenforceable. . . ). As such, whether the agreement violates the TAA is not an issue here.

B. Was there an enforceable arbitration agreement?

According to Bustamante, relators did not prove that an enforceable arbitration agreement exists because (1) the agreement does not identify her mother, Anselma Garza, and (2) both Bustamante and Garza are non-signatories to the agreement. We disagree.

Bustamante correctly states that the arbitration agreement does not mention her mother by name. Bustamante's brother, Alejandro Garza, signed the arbitration agreement as the resident's legal representative. The agreement does not identify the "resident." Instead, the blank on the agreement was left blank. Despite the "resident" not being identified, the agreement is still enforceable.

Traditional principles of contract law apply to arbitration agreements; an arbitration agreement is, after all, a contract between two parties to arbitrate. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003) ("Arbitration agreements are interpreted under traditional contract principles."). One traditional principle of contract law is that if a contract is ambiguous, parol evidence is admissible. See Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered. Id. Only where a contract is first determined to be ambiguous may the courts consider the parties' interpretation and admit extraneous evidence to determine the true meaning of the instrument. Id.

An ambiguity in a contract may be said to be "patent" or "latent." Id. A patent ambiguity is evident on the face of the contract. Id. A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter. Id. Here, we have a patent ambiguity; because the "resident" was not identified, the arbitration agreement does not clearly identify the parties to the agreement. Thus, in determining who are the parties to the agreement, parol evidence is admissible. Id.; see also Jordan v. Rule, 520 S.W.2d 463, 465 (Tex. Civ. App.--Houston [1st Dist.] 1975, no writ) ("Where the names of the contracting parties are not clearly indicated upon the face of the writing itself, parol testimony is generally admissible to show their identity and their agreed relationship to each other."). (3)

Here, Alejandro Garza testified unequivocally that he signed the arbitration agreement, as well as the admission agreement, on his mother's behalf as her responsible party. Bustamante does not contest this fact, and there is no evidence to the contrary. Thus, the undisputed evidence shows that the arbitration agreement was between Retama and Alejandro Garza on behalf of his mother, Anselma Garza.

Bustamante also argues that the arbitration agreement is not enforceable because neither she nor her mother, Anselma Garza, signed it and because Alejandro Garza did not have the legal authority to bind her mother or her. It is undisputed that Anselma Garza was incapacitated at the time of her admission into the nursing home due to Alzheimer's disease. Alejandro Garza testified that he signed the admittance papers and the arbitration agreement on his mother's behalf because she was too ill to do so. According to Alejandro, his siblings were satisfied with him taking on this role. And, his mother did not object to him signing on her behalf because "she was already ill."

Although Alejandro was not legally appointed as his mother's guardian, there is legal support for him acting on her behalf. Section 19.420 of the Texas Administrative Code, entitled "Documentation for the Delegation of Long-Term Care Resident's Rights," provides,

(a) The delegation of resident rights may occur in three cases:

(1) when a competent individual chooses to allow another to act for him, such as with a Durable Power of Attorney;

(2) when the resident has been adjudicated to be incompetent by a court of law and a guardian has been appointed; or

(3) when the physician has determined that, for medical reasons, the resident is incapable of understanding and exercising such rights. The Health and Safety Code, Chapter 313, Consent to Medical Treatment, provides guidance under certain circumstances when a resident is comatose, incapacitated, or otherwise mentally or physically incapable of communication.

In turn, chapter 313 of the Texas Health and Safety Code, the Consent to Medical Treatment Act, defines a "surrogate decision-maker" as an "individual with decision-making capacity who is identified as the person who has authority to consent to medical treatment (4) on behalf of an incapacitated patient in need of medical treatment." Tex. Health & Safety Code Ann. 313.002(10) (Vernon 2001). Section 313.004, "Consent for Medical Treatment," provides,

(a) If an adult patient in a hospital or nursing home is comatose, incapacitated, or otherwise mentally or physically incapable of communication, an adult surrogate from the following list, in order of priority, who has decision-making capacity, is available after a reasonably diligent inquiry, and is willing to consent to medical treatment on behalf of the patient may consent to medical treatment on behalf of the patient:

(1) the patient's spouse;

(2) an adult child of the patient who has the waiver and consent of all other qualified adult children of the patient to act as the sole decision-maker;

(3) a majority of the patient's reasonably available adult children

(4) the patient's parents; or

(5) the individual clearly identified to act for the patient by the patient before the patient became incapacitated, the patient's nearest living relative, or a member of the clergy.

(b) Any dispute as to the right of a party to act as a surrogate decision-maker may be resolved only by a court of record having jurisdiction under Chapter V, Texas Probate Code.

Id. 313.004 (a), (b).

It is undisputed that Anselma Garza was incapacitated. Alejandro Garza testified that his siblings were comfortable with him signing the admittance papers and arbitration agreement on behalf of Anselma. According to Alejandro, he signed other documents on behalf of his mother, including documents relating to her Medicaid. Given Alejandro Garza's testimony and the statutory authority, Alejandro Garza had actual authority to sign the arbitration agreement on his mother's behalf. (5) And, because Bustamante is suing as "next friend," she is also bound by the arbitration agreement. See Gracia v. RC Cola-7-Up Bottling Co., 667 S.W.2d 517, 519 (Tex. 1984). Further, the arbitration agreement, itself, binds Retama's and Anselma's successors, assigns, agents, attorneys, insurers, heirs, trustees, and representatives.

C. Procedurally Unconscionable?

According to Bustamante, the arbitration agreement is not enforceable because it is procedurally unconscionable. The FAA declares written provisions for arbitration "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 2; Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996). "Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening" the FAA. Casarotto, 517 U.S. at 687.

Unconscionability includes two aspects: (1) procedural unconscionability, which refers to the circumstances surrounding the adoption of the arbitration provision, and (2) substantive unconscionability, which refers to the fairness of the arbitration provision itself. In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (orig. proceeding). Courts may consider both procedural and substantive unconscionability of an arbitration clause in evaluating the validity of an arbitration provision. Id. at 572. And, the burden of proving unconscionability is on the party opposing arbitration. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001).

Here, Bustamante argues that the arbitration agreement is procedurally unconscionable because Alejandro Garza does not understand, speak, or read English, no one explained the agreement to him, and he felt pressured to sign the arbitration agreement. According to Alejandro, he felt pressured to sign the agreement because he was told that he would have to sign it for his mother to be admitted. However, he also testified that the Retama employee spoke Spanish with him and "explained some things but not everything." According to Alejandro he signed the agreement because the Retama personnel "didn't explain everything to me as it should be." However, Alejandro also admitted that he did not ask questions about the agreement or seek an explanation of the agreement.

Whether a party is illiterate or incapable of understanding English is not a defense to a contract. In Vera v. N. Star Dodge Sales, Inc., 989 S.W.2d 13, 17-18 (Tex. App.--San Antonio 1998, no pet.), we held that illiteracy is not a defense to contract formation. (6)

In Vera, the appellant argued that because he was illiterate, he did not know what he was signing when he endorsed the check containing the release language. Id. at 17. As such, appellant argued that there was no meeting of the minds and no valid contract for release. Id. We, however, held that absent proof of mental incapacity, a person who signs a contract is presumed to have read and understood the contract, unless he was prevented from doing so by trick or artifice. Id. We noted that this was true even in cases in which a party to the contract is illiterate. Id.

It is well settled that illiteracy will not relieve a party of the consequences of a contract. Every person who has the capacity to enter into a contract, in the absence of fraud, misrepresentation, or concealment, is held to know what words were used in the contract, to know their meaning, and to understand their legal effect. Therefore, if a party is unable to read the contract, he must have it read to him.

Id. (citations omitted). We then held that because the appellant had not raised an issue regarding his mental competency or regarding fraud, misrepresentation, or concealment in the procurement of the release, the contract was valid and binding. Id. at 17-18.

Additionally, in Nguyen Ngoc Giao v. Smith & Lamm, P.C., 714 S.W.2d 144, 146 (Tex. App.--Houston [1st Dist.] 1986, no writ), the appellant argued that he could not read, write, or speak English and that he understood the contract to provide for a contingent fee. The court noted that "[i]t is well settled that illiteracy will not relieve a party of the consequences of his contract." Id. The court then stated the general rule that "every person having the capacity to enter into contracts, in the absence of fraud, misrepresentation, or concealment, must be held to have known what words were used in the contract and to have known their meaning, and he must be held to have known and fully comprehended the legal effect of the contract." Id. Therefore, if a person is unable to read the contract, he must have it read to him. Id.

Here, there is no allegation of fraud, misrepresentation, or concealment. That Alejandro Garza did not speak English and therefore could not read the contract does not affect the validity of the contract.

We recognize that Bustamante relies on In re Turner Brothers Trucking Co., 8 S.W.3d 370, 377 (Tex. App.--Texarkana 1999, orig. proceeding [leave denied]), which held that an arbitration agreement was procedurally unconscionable. There, the trial court made the following findings of fact: (1) the employees who presented the agreement to the relator did not understand the agreement themselves; (2) the relator had no one to explain the document to him and did not understand it; and (3) testing by a licensed psychologist showed that the relator was functionally illiterate and had a reading disorder. Id. Under those facts, the court held that the arbitration agreement was unconscionable. Id. Our facts are distinguishable. Here, there is no evidence that the Retama personnel did not understand the agreement. And, Alejandro admitted that he did not ask any questions or seek an explanation of the agreement. Moreover, Turner is in direct conflict with our holding in Vera that illiteracy is not a defense to contract formation. Finally, Turner is only persuasive authority, and we are not bound to follow it.

Conclusion

We hold that the arbitration agreement is enforceable. As such, the trial court had no discretion but to compel arbitration and stay its own proceedings. Accordingly, we conditionally grant relators' petition for writ of mandamus and direct respondent (1) to withdraw her order denying relators' motion to compel arbitration and (2) to enter an order dismissing or staying the underlying cause pending arbitration. Only if the Honorable Elma Salinas Ender fails to comply will we issue the writ.

Karen Angelini, Justice

1. This proceeding arises out of Cause No. 2003-CVT-001366-D3, styled Ana Bustamante, Individually and as Next Friend of Anselma Garza (non compos mentis) v. Dan Ledet and Living Centers of Texas, Inc. d/b/a Retama Manor Nursing Center Laredo South, pending in the 341st Judicial District Court, Webb County, Texas, the Honorable Elma Salinas Ender presiding.

2. The Federal Arbitration Act applies to contracts "evidencing a transaction involving commerce." 9 U.S.C. 2.

3. Bustamante attempts in her response to distinguish Jordan by emphasizing factual differences between Jordan and those presented in this case. She does not, however, explain why general principles of contract law would not apply here.

4. "Medical treatment" is defined as "a health care treatment, service, or procedure designed to maintain or treat a patient's physical or mental condition, as well as preventative care." Tex. Health & Safety Code Ann. 313.002(6) (Vernon 2001).

5. In her response, Bustamante has not briefed in any manner whether this statutory authority would give Alejandro Garza authority to sign the arbitration agreement on his mother's behalf. However, citing Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir. 2002), she does argue that the agreement should not bind her mother because her mother did not sign the agreement, Alejandro did. Fleetwood Enterprises, 280 F.2d at 1074-75, held that an arbitration agreement signed by parents did not bind their children. Fleetwood Enterprises, however, is distinguishable. In that case, there was no provision in the agreement expressly stating that the parents, on behalf of their children, agreed to submit the children's claims to arbitration. Id. at 1074. Here, however, Alejandro Garza, "on behalf of Resident," signed the agreement as the "legal representative." And, the agreement itself expressly states that all claims arising from the resident's stay and care provided at Retama will be settled through arbitration.

6. Bustamante attempts to distinguish this case by arguing that Vera did not involve an arbitration agreement. However, as noted previously, contract principles apply to arbitration agreements. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Bustamante also argues that Vera is distinguishable because the plaintiffs in that case brought suit for breach of contract and were, thus, enforcing the agreement. We see no reason whether a party is seeking to enforce the contract would make Vera distinguishable. Finally, Bustamante argues that Vera is distinguishable because her "tort claims" do not "rely in any manner on the arbitration agreement, which is contractual." The arbitration agreement, however, clearly encompasses the tort claims brought by Bustamante and her mother:

The parties agree that they shall submit to binding arbitration all disputes against each other and their representatives, affiliates, governing bodies, agents and employees arising out of or in any way related or connected to the Admission Agreement and all matters related thereto including matters involving the Resident's stay and care provided at the Facility, including but not limited to any disputes concerning alleged personal injury to the Resident caused by improper or inadequate care including allegations of medical malpractice; any disputes concerning whether any statutory provisions relating to the Resident's rights under Texas law were violated; any disputes relating to the payment or non-payment for the Resident's care and stay at the Facility; and any other dispute under state or Federal law based on contract, tort, statute (including any deceptive trade practices and consumer protection statutes), warranty or any alleged breach, default, negligence, wantonness, fraud, misrepresentation or suppression of fact or inducement.

(emphasis added).