Goins, et al v. Ryan's Fam Steakhous, et al

In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 05-51549
Summary Calendar
______________
MARIA JUANA GOINS,
ALSO KNOWN AS JUANY GOINS;
MARIA E. DE LA CRUZ;
LYDIA M. SALDANA;
CAROLINA RIOJAS-SALDANA,
ALSO KNOWN AS CARRIE RIOJAS-SALDANA,
Plaintiffs-Appellees,
VERSUS
RYAN’S FAMILY STEAKHOUSES, INC.; ET AL.,
Defendants,
RYAN’S FAMILY STEAKHOUSES, INC., AND CURTIS DICKEY,
Defendants-Appellants.
_________________________
Appeal from the United States District Court
for the Western District of Texas
m 1:05-CV-46
_________________________
United States Court of Appeals
Fifth Circuit
F I L E D
May 18, 2006
Charles R. Fulbruge III
Clerk

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Before SMITH, GARZA, and PRADO,
Circuit Judges.
PER CURIAM:*
This case concerns a “triangular” arbitration
arrangement involving defendant Ryan’s
Family Steakhouses, Inc. (“Ryan’s”), plaintiff
employees, and Employment Dispute Services,
Inc. (“EDSI”), a third-party provider of al-
ternative dispute resolution services. Ryan’s
appeals the denial of its motion to compel arbi-
tration and stay litigation of plaintiffs’ claims
for race discrimination and sexual harassment
under title VII. We affirm because the
arbitration agreement between the plaintiffs
and EDSI lacks adequate consideration.
I.
All Ryan’s employees must sign a Job Ap-
plication Agreement to Arbitration of Employ-
ment-Related Disputes, which provides that
employees waive their right to judicial deter-
mination of anyemployment-related claim aris-
ing under federal or state law in exchange for
an unbiased arbitration forum provided by
EDSI. EDSI and Ryan’s’ employees are the
only parties to these agreements; Ryan’s and
its agents are merely third-party beneficiaries.
The agreement provides that the employee
“must use the EDSI forum for any and all em-
ployment-related disputes and/or claims and/or
related tort claims [he] may have against
[Ryan’s] . . . which could otherwise be
brought in court.” EDSI, in turn, agrees to
provide “an unbiased arbitration forum, im-
partial Rules and Procedures, and a fair hear-
ing and decision based on [his] claim or dis-
pute.” The agreement stipulates that the em-
ployee “[has] been given a copy of full EDSI
Rules and Procedures,” which give precise de-
tails on the nature of the proceedings provided
by EDSI. Although the agreement gives EDSI
the right to “amend the applicable Rules and
Procedures from time to time, at its discre-
tion,” it also provides that the employee may
choose whether a particular dispute will be
governed by the Rules in effect at the time the
agreement was signed or at the time the claim
was filed.
The agreement notes, in the preamble, that
“[y]our potential Employer (“signatory com-
pany” or “Company”) has entered into an
agreement with [EDSI] to arbitrate and re-
solve any and all employment-related disputes
between the Company’s employees (and job
applicants) and the Company under EDSI’s
program.” It further provides that “the Com-
pany agree[s] to use EDSI to resolve legal
claims concerning [the employee] that either
party would otherwise bring in state or federal
court.” It specifies, however, that “this agree-
ment is with EDSI, not with the Company,”
and states that the contract is “a ‘selection of
forum’ agreement by which you [i.e., the em-
ployee] agree” to submit all employment-re-
lated claims to arbitration.
The aforementioned agreement between
Ryan’s and EDSI comprises the second side of
the arbitral triangle; it requires EDSI, in ex-
change for a fee, to “administer and provide
access to the EDSI alternative dispute resolu-
tion procedures and forum for all Company job
applicants, employees, and the Companyitself,
as provided in the EDSI Rules and Pro-
cedures;” but unlike the agreement between
the employee and EDSI, it does not require
Ryan’s to submit to arbitration. Walker v.
* Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be pub-
lished and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.

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Ryan’s Family Steak Houses, Inc., 400 F.3d
370, 380 (6th Cir. 2005). Ryan’s also can can-
cel its contract with EDSI at any time with ten
days’ written notice. See id. at 375. Ryan’s,
as a third-party beneficiary, now seeks to
enforce , as a third-party beneficiary, the con-
tract between its employees and EDSI to ar-
bitrate claims brought against Ryan’s under
title VII.
II.
We have jurisdiction, under 9 U.S.C.
§§ 16(a)(1)(A)and (B), to review the denial of
a petition to stay litigation and compel ar-
bitration The Federal Arbitration Act (“FAA”)
creates a “liberal federal policy favoring arbi-
tration agreements, notwithstanding any state
substantive or procedural policies to the con-
trary.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24
(1983). When construing an arbitration
agreement, “any doubts concerning the scope
of arbitrable issues should be resolved in favor
of arbitration.” Id. at 24-25. Parties are free
to make federal statutory claims the subject of
an arbitration agreement. See Gilmer v. Inter-
state/Johnson Lane Corp., 500 U.S. 20, 26
(1991).
The FAA also provides, however, that arbi-
tration agreements are subject to defenses that
are generally applicable to contracts under
state law.1 Under Texas law, a contract must
be supported by considerationSSthat is, “a
present exchange bargained for in return for a
promise”SSwhich may take the form of “a ben-
efit to the promisor or a detriment to the
promisee.” Roark v. Stallworth Oil & Gas,
813 S.W.2d 492, 496 (Tex. 1991). Although
courts generally will not inquire into the ade-
quacy of consideration,2 “[w]hen illusory
promises are all that support a purported bi-
lateral contract, there is no contract.” Light v.
Centel Cellular Co., 883 S.W.2d 642, 645
(Tex. 1994).
III.
In a typical arbitration contract, where both
parties mutually agree to submit to an arbitral
forum to resolve claims arising between them,
it is easy to see that consideration exists.3 The
problem arises because of the peculiar nature
of this arrangement, where the employer and
employee entered into separate agreements
with a third-party arbitrator.
The circuits that have previously considered
this arrangement found it unenforceable, citing
two critical defects. First, because EDSI
initially could alter the rules governing
proceedings at its pleasure, without consent
from the employee, its promise to provide a
1 See 9 U.S.C. § 2 (stating that an arbitration
contract “shall be valid, irrevocable, and enforce-
able, save upon such grounds as exist at law or in
equity for the revocation of any contract”); Iberia
Credit Bureau, Inc. v. Cingular Wireless LLC,
379 F.3d 159, 166 (5th Cir. 2004) (“[A]s a matter
of federal law, arbitration agreements and clauses
are to be enforced unless they are invalid under
(continued...)
1(...continued)
principles of state law that govern all contracts.”).
2 See Nolan v. Young, 220 S.W. 154, 156 (Tex.
1920) (“It is not necessary that the consideration be
adequate in point of actual value. The slightest
consideration, in the absence of fraud, is sufficient
to make the most important agreement binding.”).
3 See J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 228 (Tex. 2003) (“[M]utual promises
to submit all employment disputes to arbitration
constituted sufficient consideration, because both
parties were bound to the promises to arbitrate.”).

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neutral arbitral forum was “fatally indefinite.”
Floss v. Ryan’s Family Steak Houses, Inc.,
211 F.3d 306, 315 (6th Cir. 2000).4 EDSI has
since cured this defect, modifying its contract
to allow the employee to choose whether the
rules in effect at signing or the modified rules
will govern his dispute.
Second, the Ryan’s/EDSI contract does not
contain any requirement that Ryan’s submit to
arbitration. Walker, 400 F.3d at 380. In fact,
Ryan’s ability to withdraw from its contract
with EDSI after ten days’ written notice sug-
gests it retains the ability to avoid arbitration
of any claim. The language in the employ-
ee/EDSI agreement that suggests that Ryan’s
would be bound to submit to the EDSI forum
is, therefore, a misrepresentation.5 Because
Ryan’s has not yet cured this defect, EDSI
cannot guarantee that Ryan’s will submit to ar-
bitration, so its promise to supply a neutral ar-
bitral forum to Ryan’s employees is illusory,
and the contract cannot be enforced.
Critical to our decision is Ryan’s apparent
concession in its brief that the “statement in
the preamble [of the employee/EDSI contract]
is technically rendered a misrepresentation”
because Ryan’s “could theoretically invoke the
ten daycancellation provision in the underlying
EDSI-Ryan’s contract.” Ryan’s does not
contest this factual finding, but rather insists
the employee/EDSI contract is stillenforceable
because “there was absolutely no evidence in
the Record that Ryan’s has ever sought to be
relieved of its obligation to arbitrate any case,
much less this one.”
But, when construing a contract, “[i]n the
usual case, the instrument alone will be
deemed to express the intention of the parties
for it is objective, not subjective, intent that
controls.” Pinehurst v. Spooner Addition Wa-
ter Co., 432 S.W.2d 515, 518 (Tex. 1968). It
is plain from the face of the employee/EDSI
contract that Ryan’s is not bound by its terms
and that the contract merely requires the em-
ployee to bring claims in a particular forum.
Therefore, Ryan’s private assurance that it will
submit to arbitration in every case cannot
supply the defect in the language of the con-
tract.6
Finally, Ryan’s contends that it provided
employees with adequate consideration by
agreeing to consider their applications for
employment. The Seventh Circuit in Penn,
269 F.3d at 760, rejected the proposition that
“a benefit received from a third party, as op-
posed to a benefit received from the other con-
tracting party in a contemporaneous docu-
ment, can be sufficient to create mutuality.”
Indeed, where two promises do not relate to
the same subject matter, and where they are
4 See also Penn v. Ryan’s Family Steak Hous-
es, 269 F.3d 753, 759-60 (7th Cir. 2001).
5 See In re McKinney, 167 S.W.3d 833, 835
(Tex. 2005) (noting that fraud, misrepresentation,
or deceit may void a contract).
6 Ryan’s invokes the same principle of contract
interpretation to argue that we cannot look to the
Ryan’s/EDSI agreement to determine whether the
employee/EDSI agreement is enforceable. See Hill
v. PeopleSoft USA, Inc., 412 F.3d 540, 544 (4th
Cir. 2005) (concluding that district court erred by
finding arbitration contract unenforceable based on
an internal company policy located outside the
“four corners” of the agreement). The Ry-
an’s/EDSI contract, however, merely confirms our
suspicion that EDSI did not provide the employees
with adequate consideration. The text of the
employee/EDSI contract plainly provides that “this
agreement is with EDSI, not with the Company;”
therefore, Ryan’s is not bound by its terms.

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contained in two non-contemporaneous docu-
ments, we have insufficient evidence to con-
clude that “[t]he detriment . . . induce[d] the
making of the promise, and the promise . . . in-
duce[d] the incurring of the detriment.”
Roark, 813 S.W.2d at 496. Therefore, there is
no “present exchange bargained for in return
for a promise.” Id. (emphasis added).
In summary, we agree with the reasoning of
the district court and AFFIRM the denial of
the motion to compel arbitration and stay
proceedings.

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