Nan Graves; Linda Graves; Dustin Graves; Sam Graves; Jessica Graves Parker v. Bp America Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 08-40575
NAN GRAVES; LINDA GRAVES; DUSTIN GRAVES; SAM GRAVES;
JESSICA GRAVES PARKER
Plaintiffs - Appellees
v.
BP AMERICA INC.; BP PRODUCTS NORTH AMERICA, INC.; JV
INDUSTRIAL COMPANIES LTD, formerly known as JV Piping, Inc.
Defendants - Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, GARZA, and PRADO, Circuit Judges.
PER CURIAM:
The plaintiffs in this case are the surviving spouse, mother, and children
of decedent Ronnie Graves, an employee of defendant J.V. Piping, who died in
a work-related accident at defendants’ BP Texas City facility. The plaintiffs
United States Court of Appeals
Fifth Circuit
F I L E D
May 6, 2009
Charles R. Fulbruge III
Clerk

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No. 08-40575
Tex. Civ. Prac. & Rem. Code § 71.002.1
Tex. Civ. Prac. & Rem. Code § 71.021.2
Fleetwood Enterprises Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002).3
2009 WL 353524 (Tex. 2009).4
2
brought a diversity action, suing under the Texas wrongful death statute and1
the Texas survival statute. The defendants brought motions to compel2
arbitration pursuant to the arbitration clause in Ronnie Graves’ employment
agreement. The district court granted the motions with respect to the survival
claims, as it found those claims to be wholly derivative of the decedent’s rights,
but denied the motions with respect to the wrongful death claims, as it found
those claims to be personal to the plaintiffs. Defendants appeal and we review
de novo.3
I
Appellants contend that nonsignatories suing a decedent’s employer
under the Texas wrongful death statute are bound by an arbitration agreement
between the employer and the decedent. They point us to the Texas Supreme
Court’s recent opinion in In re Labatt Food Service, L.P., where the court
answered that precise legal question: “the arbitration provision in an agreement
between a decedent and his employer requires the employee's wrongful death
beneficiaries to arbitrate their wrongful death claims against the employer even
though they did not sign the agreement.” Appellants read this as dispositive in4
this case.
We, however, are not so quick to agree. Appellants fail to mention that the
Texas Supreme Court explicitly decided to answer the question of whether
nonsignatories are bound by an arbitration agreement by applying state
substantive law, not federal law. Before relying entirely on the case, we must
first consider whether this was the correct choice of law.

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No. 08-40575
Fleetwood Enterprises Inc., 280 F.3d at 1073.5
First Option of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). “Thus state law,6
whether of legislative or judicial origin, is applicable if that law arose to govern issues
concerning the validity, revocability, and enforceability of contracts generally.” Perry v.
Thomas, 482 U.S. 483, 492 n.9 (1987).
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)7
(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
Fleetwood Enterprises, 280 F.3d at 1074.8
Sherer v. Green Tree Servicing, LLC, 548 F.3d 379, 381–83 (5th Cir. 2008);9
Washington Mutual Finance Group LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004);
Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 353 (5th Cir. 2003).
Bailey, 364 F.3d at 267 n.6 (“However, we also note there is no reason to think10
Mississippi law would compel a different result in this case . . . .”); In re Labatt Food Service,
LP, 2009 WL 353524 (Tex. 2009) (“Pending an answer from the United States Supreme Court,
we have determined to apply state substantive law and endeavor to keep it consistent with
federal law.”).
3
A
A motion to compel arbitration presents two questions. First, whether
there is a valid agreement to arbitrate, and second, whether the dispute in
question falls within the scope of the arbitration agreement. In answering the5
first question of contract validity we apply “ordinary state-law principles that
govern the formation of contracts.” The second question of scope, however, is6
answered “by applying the ‘federal substantive law of arbitrability . . . .’” While7
this is clear, there is less certainty over what law governs whether a
nonsignatory should be compelled to arbitrate—a question seemingly falling
between validity and scope. And, in fact, we have cases applying state law and8
others applying federal law to this question.9
B
This case does not require us to decide the choice-of-law issue because we,
like other courts before us, can simply note that federal and state law dovetail10
to provide the same outcome. Regarding Texas law, the Texas Supreme

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No. 08-40575
In re Labatt Food Service, LP, 2009 WL 353524 (Tex. 2009).11
Id. The Texas Supreme Court delivered this opinion subsequent to the district court’s12
decision in this case, which in large part relied on now-overruled Texas appellate court
precedent holding that wrongful death beneficiaries are not bound by a decedent’s agreement
to arbitrate.
See Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381–82 (5th Cir. 2008) (citing13
Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003)).
Id. at 361–62.14
In re Labatt Food Service, LP, 2009 WL 353524 (Tex. 2009).15
4
Court—explicitly applying Texas law—held that “[w]hile it is true that damages
for a wrongful death action are for the exclusive benefit of the beneficiaries and
are meant to compensate them for their own personal loss, the cause of action
is still entirely derivative of the decedent's rights.” Because the nonsignatory11
plaintiffs “stand in [the decedent’s] legal shoes,” they are bound by his12
agreement.
Regarding federal law, the federal common law of contracts binds
nonsignatories to arbitration agreements under various theories of contract and
agency law, including incorporation by reference, assumption, agency, veil
piercing or alter ego, estoppel, and third-party beneficiary. The “direct13
benefits” version of estoppel applies in this case; it prevents a nonsignatory from
knowingly exploiting an agreement containing the arbitration clause. In other14
words, a nonsignatory cannot sue under an agreement while at the same time
avoiding its arbitration clause.
Here, then, we must decide if the Appellees’ statutory wrongful death
actions are premised, at least in part, on the decedent’s employment agreement
with the signatory defendants. Wrongful death being a state cause of action, the
nature of the suit is defined by Texas law. In re Labatt defined a Texas wrongful
death action as “entirely derivative of the decedent’s rights.” Accordingly, just15
as any suit by Ronnie Graves against his employer for a work-related injury

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No. 08-40575
5
would be premised on his employment agreement, the wrongful death actions
brought by his statutory beneficiaries must also be premised on that
agreement—which is the agreement bearing the arbitration clause. Thus, under
the federal common law of contracts, the statutory beneficiaries of a wrongful
death action in Texas are bound by an arbitration agreement between the
decedent and his employer.
The judgment of the district court with respect to the wrongful death
claims is REVERSED.

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