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Employer’s Failure to Sign Arbitration Agreement Made it Unenforceable Against Employee

Notwithstanding the strong federal and state policies in favor of arbitrating business disputes, employers that manage litigation risk via mandatory arbitration agreements may wish to consider whether the agreements require execution on the company’s part.

After all, employers should expect that any important contract or agreement is going to be closely scrutinized in a court of law if a dispute arrises..

Recently, in Huckaba v. Ref-Chem L.P., the Fifth Circuit held that an arbitration agreement signed by an employee was not enforceable because it was not signed by a representative of the employer. Having gone to the trouble of drafting the arbitration agreement and obtaining the employee’s signature on it, the employer placed the document in the employee’s personnel file and moved on to other business.

The Fifth Circuit said that language in the agreement explicitly required the signature of both parties. For example, the agreement provided that “[by] signing this agreement the parties are giving up any right they may have to sue each other.” Elsewhere the agreement provided that modifications must be “in writing and signed by all parties.” There was also a blank signature line for the employer, though the court said that this was not dispositive.

In view of this language, the court said, the absence of the employer’s signature is fatal to enforcement of the arbitration agreement.

The court rejected the employer’s argument that the employee’s continued employment after signing the arbitration agreement constituted acceptance of the agreement. The contested issue in this case, the court said, is whether the arbitration agreement was properly executed — not whether the employee accepted its terms.

The court also turned back the employer’s reliance on In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002), a case in which the Texas Supreme Court enforced an arbitration agreement that was not signed by either the employee or the employer. In Halliburton, the court noted, the agreement stated that submission to arbitration was a term of employment. In this case, on the other hand, the arbitration agreement merely provided that continued employment was consideration for the agreement.

Along the way, the Fifth Circuit observed that the trial court had erred when it concluded that the federal presumption in favor of arbitration, contained in the Federal Arbitration Act, meant that the party challenging an arbitration agreement has the burden to overcome its presumptive validity.

The Huckaba v. Ref-Chem case was decided a few weeks after the U.S. Supreme Court’s ruling in Epic Systems Corp. v. Lewis, No. 16-285 (U.S., decided May 21, 2018). In Epic Systems, the high court emphasized that federal courts may refuse enforcement of arbitration agreements only on “generally applicable contract defenses” under state law.

The message employers should take from the Huckaba and Epic Systems cases is that federal courts will enforce arbitration agreements, but they will not judicially repair contracts that fail under state contract law. The arbitration agreement in Huckaba might have survived if it had been drafted differently (e.g., omitting language explicitly mentioning the need for the employer’s signature, and tightening up the language regarding the effect of continued employment). However, employers should ensure, for all contracts affecting company operations, that airtight processes are put in place to guarantee that every necessary signature is obtained.

The case is Huckaba v. Ref-Chem L.P., No. 17-50341 (5th Cir., decided June 11, 2018)

County Worker on FMLA Leave Deemed “Unemployed” Under Texas Unemployment Compensation Act

The Texas Supreme Court recently concluded that a county employee on unpaid medical leave was “unemployed” within the meaning of the Texas unemployment compensation statute.

The court’s ruling is surprising, because it appears to create a right to unemployment benefits for workers who are not actually unemployed as most understand the term. However, all unemployed workers are not entitled to unemployment benefits. They must also meet the Unemployment Act’s numerous eligibility criteria. The court was careful to point out that it was not ruling on the separate issue of eligibility.

Employee Sought Benefits During Unpaid Leave
The employee in this case worked for the Wichita County government as an assistant emergency management coordinator. Suffering from anxiety and depression, she took several months’ leave under the Family and Medical Leave Act. When her paid leave ran out, she converted to unpaid leave and subsequently made a claim for unemployment benefits.

The Texas Workforce Commission concluded that the county worker was unemployed while on unpaid leave of absence for a medically verifiable illness and that it could pay unemployment benefits if the worker “met all other requirements.”

Wichita County appealed. The case eventually arrived at the Texas Supreme Court, where the high court agreed with the Texas Workforce Commission. As Justice Debra H. Lehrmann observed in a unanimous opinion, the Texas Unemployment Compensation Act’s definition of “unemployed” does not require that an employee be terminated from employment.

An individual is considered unemployed if the individual meets the act’s definition of “totally unemployed” or “partially unemployed.” Those terms are defined, at §§ 201.091(a) and (b) of the Unemployment Act, by income thresholds: the individual did not earn more than $5 of 25 percent of the benefit amount during the relevant benefit period.
“Pursuant to these provisions, an individual qualifies as ‘unemployed’ so long as her wages are low enough,” Justice Lehrmann wrote. “Nothing in these definitions contemplates a formal severance of the employer–employee relationship.”

The Texas high court rejected both the county’s contention that this reading of the Unemployment Act defied a common-sense understanding of the word “unemployed,” and the Texas Court of Appeals’ somewhat related view that giving the Unemployment Act a plain language interpretation would lead to absurd results.

The Unemployment Act, § 207.021(a)(1)–(5), (8) supplies a long list of criteria to be met before an individual is eligible to obtain unemployment benefits. The individual must:

  • have registered for work at an employment office and continued to report to the office as required by applicable Commission rules;
  • have made a claim for benefits;
  • be able to work;
  • be available for work;
  • be actively seeking work in accordance with Commission rules; and
  • have been “totally or partially unemployed for a waiting period of at least seven consecutive days.”

In order to receive unemployment benefits, an individual must be “unemployed” and “eligible” and not otherwise statutorily excepted or disqualified from receiving benefits. Justice Lehrmann wrote that the court was not deciding whether the county worker met the eligibility criteria. She surmised that it was not likely that a worker could qualify for FMLA leave and also be eligible for unemployment benefits.

Going forward, it will be important for employers in Texas to test the court’s assumptions. Employers should take a hard look at their employment policies to see if there are any loopholes that would allow employees on unpaid leave to meet the Unemployment Act’s eligibility criteria. These should be closed up immediately; otherwise employers could face unforeseen exposure for employment benefits.

The case is Texas Workforce Commission v. Wichita County, No. 17-0130 (Texas, decided May 25, 2018).

Court applies foreseeability limitation to catch-all force majeure clause

A Texas appellate court ruled that a significant downturn in the price of oil is not a force majeure event that excuses non-performance with a promise to drill for oil by a certain date. Reviewing a contract that excused non-performance for several reasons plus a catch-all clause which stated, “any other cause not enumerated herein,” the court said that this broad language must be interpreted to reach only force majeure events that were not reasonably foreseeable at the time the parties entered into their contract.

The case arose from a contract dispute between two oil companies, TEC Olmos and ConocoPhillips. TEC Olmos contracted with ConocoPhillips to drill for oil and gas on land leased by ConocoPhillips. The contract contained a deadline for drilling to begin, and a $500,000 liquidated damages clause in the event TEC Olmos failed to meet the deadline. The contract contained a force majeure clause listing several specific events, adding to the list a catch-all provision that excused non-performance due to “any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected.”

After the contract was executed, global oil prices dropped significantly, causing TEC Olmos’ financing partners to drop out of the project. TEC Olmos informed ConocoPhillips that it would be unable to meet the drilling deadline, citing the force majeure clause as a reason to extend the deadline. ConocoPhillips successfully sued for the $500,000 liquidated damages amount, with the trial court finding that the force majeure clause did not excuse TEC Olmos’ non-performance.

First District Court of Appeals Chief Justice Sherry Radack, writing for a 2-1 majority, explained that, at common law, the term “force majeure” included the notion of foreseeability. In cases such as this one, where an event is alleged to fall within the terms of a catch-all force majeure provision, it is unclear whether the contracting parties had contemplated and voluntarily assumed that risk of that event.

In a such a circumstance, it is appropriate to apply common-law notions of force majeure, including unforeseeability, to “fill the gaps” in the force majeure clause, Chief Justice Radack wrote. “Because fluctuations in the oil and gas market are foreseeable as a matter of law, it cannot be considered a force majeure event unless specifically listed as such in the contract.”

The case is TEC Olmos LLC v. ConocoPhillips Co., No. 01-16-00579.

Professors alleging discrimination sue University of Houston-Victoria

Three business professors at the University of Houston-Victoria (UHV) are alleging discrimination by their former dean in a lawsuit they filed in March. In their lawsuits, associate professors Luh Yu Ren, Chun-Sheng Yu and Jianjun Du argue UHV officials failed to protect them from discrimination and retaliation from Farhang Niroomand, the former dean of the School of Business Administration.

The plaintiffs, whose are between 59 to 65 years old, are alleging their former boss created a hostile work environment and implemented obstacles preventing them from receiving promotions and pay raises after they complained about Niroomand to the UHV officials about his behavior. Further, the plaintiffs complain the prejudicial treatment they received was due to their ages and Chinese heritage.

Attorneys for UHV argue the men’s lawsuits are without merit, dismissing them as nothing more than common workplace disagreements. “Plaintiff[s] [are] simply complaining about ordinary tribulations of the workplace such as petty slights and minor annoyances,” they argued in court documents. They also claimed the lawsuit fails to meet procedural and jurisdictional requirements.

The embattled former dean resigned in 2017.

The plaintiffs allege they filed suit only after failing to resolve their complaints through the university’s human resources department, the Texas Workforce Commission Civil Rights Division and the Equal Employment Opportunity Commission. While initially complaining UHV failed to respond to their grievances, the plaintiffs since admitted they believed officials did not actually take their complaints seriously.

Texans seek class action certification in suit against Talisman Energy USA

If four South Texas landowners get their way, a federal judge will certify the individual lawsuits they filed against Talisman Energy USA in 2016 as a class action. The plaintiffs allege that Talisman shorted them on royalty payments for oil leases on their land.

The four recently filed a motion to have their lawsuits against Talisman joined as a class, arguing that as many as 4,000 other royalty owners from Eagle Ford Shale of South Texas and Marcellus Shale in Pennsylvania could join the ongoing litigation.

Bryan Blevins, a partner with Houston-based Provost Umphrey Law Firm LLP, said, “It’s clear that Talisman knew what they were doing when the company voluntarily commingled production from different wells and then allocated net sales in violation of best oil field practices and Texas law. We intend to prove that the amounts paid to the royalty owners were based on manipulated production volumes.” The plaintiffs are seeking to have Blevins and another member of his firm named as their lead counsel.

According to court filings, Talisman denies any wrongdoing.

The pending lawsuits claim Talisman manipulated production volumes for oil wells operated in the two shale basins named in the suit.

Talisman Energy USA is an indirect subsidiary of Calgary, Alberta–based Talisman Energy Inc., which was acquired by Repsol S.A. in 2015.

The case is Rayanne Regmund Chesser, Gloria Janssen, Michael Newberry and Carol Newberry v. Talisman EnergyUSA, Inc. No. 4:16-cv-02960 in the U.S. District Court for the Southern District of Texas, Houston Division.

Texas jury awards $100 million in lawsuit between oil companies over underpayments under joint operating agreement

A Texas jury issued an award of $100 million in a lawsuit between two oil companies.

Jurors found that Talisman Energy USA, a Canadian firm, underpaid Matrix Petroleum of Houston and breached a joint operating agreement for gas and oil production in the Eagle Ford Shale. Talisman was acquired by Repsol in 2015 and is now called Repsol Oil & Gas USA.

The joint operating agreement dates back to 1954 and governs drilling and production on 12,600 acres of the Cooke Ranch. Talisman acquired its interest in 2010, along with its joint venture partner Statoil. Matrix was a non-operating partner, but the lawsuit alleges that Matrix was treated as a passive investor instead, with Talisman assuming unilateral control and breaching governing documents related to Cooke Ranch operations.

According to the complaint, an early dispute arose when Talisman drilled wells on a nearby property within 100 feet of the Cooke Ranch, without drilling an offset well on Cooke Ranch as required by the lease. The lawsuit also claimed that Talisman used improperly sized meters which failed to accurately measure the gas and oil produced from the Cooke Ranch field, resulting in Matrix not being paid for all of the gas and oil that Talisman produced from the well. The complaint alleged that Talisman sold the gas and oil to a third party, profiting from the difference. Repsol is expected to appeal the verdict.

Texas lawsuit filed claiming waste management firm engaged in tortious interference with contracts

A Texas waste management company filed a lawsuit in a state court claiming that a competitor engaged in tortious interference with contracts.

Waste Connections of Texas alleges in the complaint that Rubicon Global repeatedly hired local car-towing companies to “unlawfully remove” waste storage containers owned by Waste Connections. The lawsuit claims that Rubicon did this at least 35 times, when it acquired former customers of Waste Connections. Rubicon said that the lawsuit was part of a “pattern of anti-competitive behavior” by Waste Connections, and that Rubicon intended to disrupt the waste management industry.

Waste Connections claims that Rubicon’s methods of taking over accounts are problematic in part because Waste Connections’ contracts include the right to match offers from competitors, but the towing of waste containers is the primary issue in the lawsuit. The complaint alleges that Waste Connections sometimes only receives a few days’ notice that a customer is switching to Rubicon and waste containers need to be removed. If this deadline is not met, then Rubicon hires towing companies to move the containers, sometimes dropping them off full at the nearest Waste Connections yard. Other containers have gone missing for days, the lawsuit claims.

The lawsuit accused Rubicon of conversion, negligence and tortious interference with contracts. Waste Connections is seeking a declaratory judgment that the towing of waste containers violates contracts between Waste Connections and its customers, and an injunction preventing Rubicon from moving waste containers owned by Waste Connections, as well as damages, attorneys’ fees and other relief.

Texas appeals court rules on consent provision in oil lease case

A Texas appeals court eliminated a $27.7 million judgment against an oil and gas company in a dispute over a drilling farmout agreement, ruling that the contract permitted the company to withhold consent to an assignment of the agreement.

Carrizo Oil & Gas Inc. had appealed a jury verdict finding it liable for fraud, breach of contract and tortious interference with contract. The jury awarded Barrow-Shaver Resource Co. (BSR) $27.7 million on the breach of contract claim. Carrizo had signed a drilling farmout agreement with BSR, but when BSR signed a deal assigning the agreement to Raptor Petroleum II LLC, Carrizo refused to honor it.

The Twelfth District Court of Appeals reversed the lower court’s decision, holding that BSR should receive nothing. Chief Justice James T. Worthen wrote that a provision in the farmout agreement permits Carrizo to withhold consent to assignment of the agreement to another party, and the trial court should not have submitted that issue to the jury.

Judge Worthen wrote that because the contract was unambiguous, the jury should not have had the opportunity to decide the breach of contract issue. The appeals court also noted that the evidence of previous drafts and negotiations indicated that Carrizo intended to preserve its right to withhold consent. The evidence was that a preliminary draft of the agreement said that Carrizo could not “unreasonably” withhold consent, but that clause was deleted. The appeals court said that this evidence was not barred from admissibility by the parol evidence rule, and the trial court should not have excluded it.

Texas telecommunications company sues Comcast claiming tortious interference

A small Texas telecommunications company has filed a lawsuit against cable giant Comcast, alleging tortious interference with contract.

In the lawsuit, Anthony Luna claims Comcast dug up and destroyed cables owned by his company, Telecom Cable. Luna alleges that Comcast workers cut cables and disrupted service to his customers in the Houston area. The complaint filed June 14 claims that Telecom Cable had to fold after a six-week effort of trying to restore service as customers deserted the company.

According to Luna’s attorney, he had been doing business in the Houston area since 2007, and Comcast offered to buy out his small cable operation in 2013. Luna declined. Comcast then began installing its own cables in shared utility easements, a normal industry practice. Telecom sent Comcast a map of its infrastructure and marked its cables with orange paint and flags, so that Comcast workers would not accidentally damage the cables. However, Luna soon began receiving shortage outages and finding that his cables had been cut. Luna claims that Telecom Cable’s lines were cut repeatedly and he was forced to close the business as customers terminated their service and switched to Comcast.

Luna is seeking damages in excess of $1 million, including punitive damages, for tortious interference with contract, negligence, conspiracy, and aiding and abetting.

Texas appellate court rules against owner of royalty interest in fraudulent inducement lawsuit

A Texas appellate court held that the owner of a royalty interest could not claim fraudulent inducement with regard to its settlement with a Shell Oil affiliate that operated the oil and gas property. In 2014, a Texas state court jury found that the Syrian American Oil Corp. (Samoco) was fraudulently induced into entering a settlement agreement in 1989 with Pecten Orient Co., a Shell affiliate that owned the property in Syria. However, the jury also found that Samoco should have discovered the issue before making the agreement.

On appeal, Samoco argued that it did not discover the fraud until 2006, when Pecten made an offer to buy the royalty interest. However, the First Court of Appeals agreed with the trial court, finding that Samoco’s 2007 lawsuit was time-barred.

The Texas appellate court also held that Pecten should have been awarded a portion of the $3.5 million in attorneys’ fees and costs that it claimed to have incurred, because the jury found that Samoco breached the agreement by filing the lawsuit. The jury awarded zero dollars in damages, but Pecten argued that it was contrary to the weight of the evidence. The court said that the evidence regarding fees was undisputed, and Samoco did not substantively challenge the attorneys’ fees evidence on appeal.

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