Vibra Rehabilitation Hospital of El Paso, LLC d/b/a Highlands Rehabilitation Hospital, Sabra Texas Holdings, L.P., and Diana Schulz v. Ramiro Illarramendi, Jr. (No. 08-23-00137-CV; May 17, 2024) arose from a workplace-injury claim. Plaintiff, a maintenance supervisor at Highlands, was checking a light fixture when he was allegedly electrocuted and fell from a ladder. He sued Vibra, Highlands (a wholly owned subsidiary of Vibra), Highlands’ CEO Diana Schulz, and Sabra, the owner of the hospital facility. Upon his employment, Plaintiff signed an employment agreement with Vibra that included an arbitration provision. Vibra and the other defendants moved to compel arbitration. The trial court granted the motion as to Vibra but not the other defendants, who sought interlocutory relief.
In an opinion by Chief Justice Alley, a divided panel reversed in part and affirmed in part. The issue was whether the defendants who did not sign the arbitration provision could enforce it. Highlands, Plaintiff’s direct employer, argued that it could enforce the agreement because the arbitration provision referred to Vibra, Highlands’ corporate parent, and to “an affiliate or successor thereof that” has adopted Vibra’s plan for employee benefits if they are injured on the job. Highlands argued further that the addendum to the plan identified Highlands as a “participating site” intended to incorporate Highlands as an entity subject to the agreement (as opposed to merely a business address where Plaintiff worked). Observing that in this context the plain meaning of “participate” is “to take or have a part or share,” the majority had no trouble concluding that Highlands, as Plaintiff’s direct employer, directed and controlled Plaintiff’s work and thus “participated” in the agreement. Plaintiff then questioned whether Highlands “adopted” Vibra’s plan, but again the court determined that by participating as Plaintiff’s employer pursuant to the agreement, Highlands could be assumed to have adopted the plan (the plan itself did not require Highlands to take any formal action to “adopt” it). The court held that Highlands could enforce the agreement.
As to Highlands CEO, Diana Schulz, the court determined that as an “agent” of Highlands, Schulz could likewise invoke the arbitration provision against a Highlands employee. “To establish that right,” the court wrote, a non-signatory agent must ‘show it was subject to the principal signatory’s control and authorized to act as its agent” (citation omitted). The court pointed to the affidavit of Vibra’s general counsel to the effect that both Highlands and Schulz were under Vibra’s corporate control. Perhaps more to the point, as Highlands’ CEO, Schulz was clearly authorized to act as Highlands’ agent in all matters. And if Highlands was authorized to enforce the arbitration provision, so was Schulz.
Finally, the court affirmed the trial court’s denial of Sabra’s motion to compel arbitration. Sabra argued that “it could compel arbitration because [Plaintiff’s] claims against it are ‘based on the same operative facts and are substantially similar and intertwined with the claims [Plaintiff] has asserted against Vibra[.]’” The court rejected this claim, observing that SCOTX has never adopted the “intertwined-claims theory” (Sabra relied on a Second Circuit decision for this argument). Finding that Sabra was merely Highlands landlord and that its relationship with the other defendants was that of “independent parties to a business transaction,” the majority ruled that “Sabra has not shown itself to have a right to compel arbitration of [Plaintiff’s] workplace-injury suit.”
Although Sabra could not enforce the arbitration agreement, however, did not necessarily mean that Plaintiff’s lawsuit against it should proceed in parallel to the arbitration proceeding. At the trial court, the defendants other than Vibra sought to stay the suit pending arbitration, should the trial court determine that they could not participate in the arbitration. Sabra asked the court of appeals to review that ruling, but the court demurred because the ruling was based on three defendants remaining the litigation, not the one left standing by the court of appeals’ decision. The court therefore left the issue to the trial court on remand.
Justice Palafox filed a concurring and dissenting opinion. She agreed with the majority as to Sabra but not Highlands and Schulz, who she would have held did not show that they were entitled to any of the exceptions permitting non-signatories to enforce an arbitration provision. She took issue with the majority’s characterization of Highlands as having adopted the plan simply by virtue of being Plaintiff’s employer, noting that Texas law assumes that even wholly-owned subsidiaries are independent entities and that, as such, Highlands needed to pony up evidence that it actually adopted its parent’s plan before asserting its right to arbitrate. And since Highlands didn’t do that, Schulz couldn’t do it either.
We thought at first blush that this case was not that close, but now we’re not so sure. The dissent’s point about independent entities is well taken. In any event, the agreement’s clarity in this regard leaves much to be desire and makes the majority to work harder than it probably should have to connect the dots between Vibra, as the signatory on the employee-injury plan that contained the arbitration provision, and Highlands, an independent company that did not sign the agreement and is only recognized as a “participating site,” whatever that may mean.
