Case 4:21-cv-03002 Document 20 Filed on 04/19/22 in TXSD Page 1 of 9
`United States District Court
`Southern District of Texas
`ENTERED
`April 19, 2022
`Nathan Ochsner, Clerk
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`Plaintiff.
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`VS.
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`AT&T, INC., et al.,
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF TEXAS
`HOUSTON DIVISION
`JAMARQUIS ETHERIDGE,
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`CIVIL ACTION NO. 4:21-cv-03002
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`Defendants.
`MEMORANDUM AND RECOMMENDATION
`Before me is Defendants’ Motion to Compel Arbitration. See Dkt. 11. After
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`carefully reviewing the motion, the parties’ briefing, and the applicable law, I
`recommend that the Motion to Compel Arbitration be GRANTED and this case
`be dismissed.
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`BACKGROUND
`In September 2009, Plaintiff Jamarquis Etheridge (“Etheridge”) opened an
`account with AT&T, Inc. and AT&T Mobility, LLC (collectively, “AT&T”) for
`wireless telephone service. When he did so, he executed a Wireless Service
`Agreement (“Wireless Agreement”), which incorporates AT&T’s Terms of Service
`Agreement (“Terms of Service”). See Dkt. 11-2 at 4. Directly above the Wireless
`Agreement’s signature block1 is the following information in bolded letters:
`I HAVE READ AND AGREE TO BE BOUND BY THIS
`AGREEMENT WITH ITS SEPARATE TERMS OF SERVICE,
`RATE PLAN AND FEATURES BROCHURES (including but
`not limited to, their Changes to Terms and Rates,
`Limitations of Liability, and Arbitration clauses).
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`Id.
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`1 Etheridge signed the Wireless Agreement electronically on September 9, 2009, and his signature
`was recorded on AT&T’s signature-capture device. See Dkt. 11-1 at 3; Dkt. 11-4 at 2.
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`The 20-page Terms of Service contains an arbitration provision that
`provides, in part:
`In the unlikely event that AT&T’s customer service
`department is unable to resolve a complaint you may have
`to your satisfaction (or if AT&T has not been able to resolve
`a dispute it has with you after attempting to do so
`informally), we each agree to resolve those disputes
`through binding arbitration or small claims court instead of
`in courts of general jurisdiction.
`…
`ARBITRATION AGREEMENT
`(1) AT&T and you agree to arbitrate all disputes and claims
`between us. This agreement to arbitrate is intended to be broadly
`interpreted. It includes, but is not limited to:
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` Claims arising out of or relating to any aspect of the relationship
`between us, whether based in contract, tort, statute, fraud,
`misrepresentation or any other legal theory.
`Dkt. 11-3 at 17–18. The arbitration provision further provides that the American
`Arbitration Association (“AAA”) Commercial Arbitration Rules will govern the
`arbitration proceedings. See id. at 19.
`In his Complaint, Etheridge alleges that “[o]n or about September 10, 2020,
`AT&T improperly allowed wrongdoers access to [his] wireless account . . . without
`his authorization.” Dkt. 1 at 1. “[A]s a result of AT&T’s failure to provide reasonable
`and appropriate security to prevent unauthorized access to [his] wireless account,”
`Etheridge claims that hackers “were able to change [his] password on one of his
`cryptocurrency accounts” and remove 159.8 Ethereum Tokens—at the moment,
`worth a little over $500,000. Id. at 6.
`Based on these allegations, Etheridge asserts six causes of action against
`AT&T: (1) violation of the Federal Communications Act; (2) breach of contract; (3)
`negligence; (4) violation of the Texas Deceptive Trade Practices Act; (5) negligent
`hiring, retention, and supervision; and (6) negligent infliction of emotional
`distress. See id. at 10–15.
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`AT&T has moved to compel arbitration of Etheridge’s claims.
`LEGAL STANDARD
`“[A]rbitration is a matter of contract and a party cannot be required to
`submit to arbitration any dispute which [it] has not agreed . . . to submit.” AT&T
`Techs. v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986) (quotation
`omitted). In deciding a motion to compel arbitration, district courts engage in a
`two-step inquiry. I must first ascertain whether the parties agreed to arbitrate the
`dispute. See Polyflow, LLC v. Specialty RTP, LLC, 993 F.3d 295, 302 (5th Cir.
`2021). This “question involves two considerations: (1) whether there is a valid
`agreement to arbitrate between the parties; and (2) whether the dispute in
`question falls within the scope of that arbitration agreement.” Id. (quotation
`omitted). If I find that the parties agreed to arbitrate the claims at issue, I must
`then determine “whether any federal statute or policy renders the claims
`nonarbitrable.” Id. (quotation omitted).
`It is worth noting that the Federal Arbitration Act (“FAA”) “expresses a
`strong national policy favoring arbitration of disputes, and all doubts concerning
`the arbitrability of claims should be resolved in favor of arbitration.” Wash. Mut.
`Fin. Grp., LLC v. Bailey, 364 F.3d 260, 263 (5th Cir. 2004) (quotation omitted).
`The FAA “leaves no place” for the court to exercise discretion. Dean Witter
`Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). As a result, I must order the
`parties to arbitrate issues covered by a valid arbitration agreement. See id.
`ANALYSIS
`THE PARTIES AGREED TO ARBITRATE THEIR DISPUTE
`issue
`There
`is no disagreement that the arbitration provision at
`encompasses this dispute. The only question is whether that arbitration clause is
`enforceable. Etheridge argues the arbitration provision is unenforceable because:
`(1) he never read the arbitration provision until after filing this lawsuit; (2) it is
`“procedurally unconscionable” because (i) the parties had “unequal bargaining
`power,” (ii) the “arbitration provision . . . was a surprise,” and (iii) the Service
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`Agreement “failed to attach the applicable AAA Commercial Arbitration Rules”;
`and (3) it is “substantively unconscionable” because the arbitration provision “was
`not within [his] reasonable contemplation.” Dkt. 12 at 3–5. I will tackle each
`argument in turn.
`1. Failure to Read the Arbitration Agreement
`Etheridge’s first argument is that the arbitration provision is unenforceable
`because he did not read it. He makes this claim even though the Wireless
`Agreement he signed in September 2009 expressly states that (1) he had been
`presented a copy of the Terms of Service, which included a five-page, detailed
`arbitration agreement; and (2) he agreed to be bound by the Terms of Service,
`including the arbitration provision. See Dkt. 11-2 at 4; Dkt. 11-3. Needless to say,
`Etheridge’s argument is unpersuasive.
`“A person who signs a contract 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.” Delfingen US-Tex.,
`L.P. v. Valenzuela, 407 S.W.3d 791, 801 (Tex. App.—El Paso 2013, no pet.)
`(collecting cases). 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. See In re Bank of Am., N.A., 278 S.W.3d 342, 344
`(Tex. 2009); In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007).
`In the arbitration context, it is well-settled under Texas law that “a party’s
`failure to read an arbitration agreement does not excuse him from arbitration.”
`Gilliam v. Glob. Leak Detection U.S.A., Inc., 141 F. Supp. 2d 734, 737 (S.D. Tex.
`2001). On multiple occasions, the Texas Supreme Court has considered and
`rejected the identical argument Etheridge raises here. In Cantella & Co. v.
`Goodwin, the City of Lufkin sought to avoid arbitration, arguing that it did not
`agree to arbitrate because the assistant city manager who signed a contract “did
`not know about the arbitration provision.” 924 S.W.2d 943, 944 (Tex. 1996). The
`Texas Supreme Court dismissed this line of reasoning: “Because of the document’s
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`nature, combined with the legal presumption that a party who signs a contract
`knows its contents, we reject the City’s argument that it did not agree to arbitrate
`because it did not see the arbitration provision.” Id. Similarly, in EZ Pawn Corp.
`v. Mancias, the Texas Supreme Court considered an argument that an arbitration
`agreement should not be enforced because the plaintiff, Roel Gonzalez
`(“Gonzalez”), “never actually read it and therefore, did not understand its effect.”
`934 S.W.2d 87, 90 (Tex. 1996). Rejecting that argument, the Texas Supreme Court
`held: “Gonzalez’ failure to read the agreement does not excuse him from
`arbitration. We presume a party, like Gonzalez, who has the opportunity to read
`an arbitration agreement and signs it, knows its contents.” Id. Because signatories
`to a written contract have an obligation to read what they sign, Etheridge’s alleged
`ignorance of the Terms of Service does not relieve him from complying with the
`terms of the arbitration provision.
`2. Unconscionability
`Next, Etheridge contends that the arbitration clause is unenforceable
`because it is unconscionable. Under Texas law, “[u]nconscionability 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). “[C]ourts may consider
`both procedural and substantive unconscionability of an arbitration clause in
`evaluating the validity of an arbitration provision.” Id. at 572 (emphasis added).
`Because arbitration is a favored method of dispute resolution, the Texas
`Supreme Court has cautioned that courts “should be wary of setting the bar for
`holding arbitration clauses unconscionable too low as that would undermine the
`liberal federal policy favoring arbitration agreements.” Venture Cotton Co-op v.
`Freeman, 435 S.W.3d 222, 232 (Tex. 2014) (quotation omitted). Thus, a party
`opposing arbitration on the grounds of unconscionability bears the heavy burden
`of proving this defense. See id.
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`i.
`Procedural Unconscionability
`The procedural aspect of unconscionability “is concerned with assent and
`focuses on the facts surrounding the bargaining process.” Sw. Bell Tel. Co. v.
`DeLanney, 809 S.W.2d 493, 499 (Tex. 1991 Unequal bargaining power alone “does
`not establish grounds for defeating an agreement to arbitrate under the FAA.” EZ
`Pawn, 934 S.W.2d at 90–91. See also In re Palm Harbor Homes, 195 S.W.3d 672,
`679 (Tex. 2006) (“The principles of [procedural] unconscionability do not negate
`a bargain because one party to the agreement may have been in a less advantageous
`bargaining position.”). Rather, “[u]nconscionability principles are applied to
`prevent unfair surprise or oppression.” In re Palm Harbor Homes, 195 S.W.3d at
`679. See also Freeman, 435 S.W.3d at 228 (describing an unconscionable contract
`as one that “no man in his senses and not under delusion would make” (quotation
`omitted)).
`Citing out-of-circuit cases, Etheridge avers that the agreement to arbitrate is
`procedurally unconscionable because “it was a surprise” to him. Dkt. 12 at 5–6.
`This is nothing more than a creative attempt to argue that the arbitration
`agreement should not be enforced because Etheridge failed to read it. As already
`discussed, this argument is a non-starter. Etheridge could have—and should
`have—read the arbitration agreement before agreeing to its terms. Failure to read
`the terms of an agreement is insufficient to establish procedural unconscionability,
`as it does not demonstrate that some form of oppression or unfairness tainted the
`negotiation process.
`Lastly, courts have repeatedly rejected Etheridge’s argument that the
`“arbitration provision is procedurally unconscionable because [AT&T] failed to
`attach the applicable AAA Commercial Arbitration Rules.” Dkt. 12 at 5. See, e.g.,
`Edwards v. Doordash, Inc., No. CV H-16-2255, 2016 WL 7852532, at *7 (S.D. Tex.
`Dec. 8, 2016), aff’d, 888 F.3d 738 (5th Cir. 2018) (relying on Texas law: “failure to
`attach the AAA rules will not support a finding of procedural unconscionability on
`its own without other elements of procedural unconscionability”); U.S. ex rel.
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`Cassaday v. KBR, Inc., 590 F. Supp. 2d 850, 855 n.9 (S.D. Tex. 2008) (relying on
`Texas law: “to the extent [plaintiff] argues the arbitration provision is
`unconscionable because KBR did not give him a copy of the KBR Dispute
`Resolution Program rules . . . the Court finds this argument is unavailing and
`without merit”); In re Dec. Nine Co., 225 S.W.3d 693, 701–02 (Tex. App.—El Paso
`2006, no pet.) (same). Accord Raymond James & Assocs. v. Bowman, 196 S.W.3d
`311, 320 (Tex. App.—Houston [1st Dist.] 2006, no pet.) (finding arbitration
`provision located in an incorporated document bound account holders even
`though they never received a copy).
`In sum, there is no evidence that the process through which Etheridge
`entered into the agreement with AT&T was unfair or oppressive. That is, no
`evidence suggests that deception or other unethical business practices influenced
`Etheridge’s decision to enter into the agreement. Rather, “[Etheridge] had the
`choice of wireless service providers, but chose to contract with [AT&T] despite the
`arbitration agreement contained in its Terms of Service.” Johnson v. AT&T
`Mobility, L.L.C., No. 4:09-CV-4104, 2010 WL 5342825, at *4 (S.D. Tex. Dec. 21,
`2010).
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`ii.
`Substantive Unconscionability
`“[S]ubstantive unconscionability . . . refers to the fairness of the arbitration
`provision itself.” In re Halliburton, 80 S.W.3d at 571. “A contract is substantively
`unconscionable where its inequity shocks the conscience.” Muzquiz v. Para Todos,
`Inc., 624 S.W.3d 263, 276 (Tex. App.—El Paso 2021, pet. filed). See also Delfingen,
`407 S.W.3d at 798 (“The grounds for substantive abuse must be sufficiently
`shocking or gross to compel the court to intercede.”). Etheridge’s only argument
`concerning substantive unconscionability—that arbitration was not within his
`“reasonable contemplation”—falls well short of this onerous standard. Dkt. 12 at 5.
`I thus reject Etheridge’s attempt to invalidate the arbitration agreement based on
`substantive unconscionability.
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`B. NO FEDERAL STATUTE OR POLICY RENDERS ETHERIDGE’S CLAIMS
`NONARBITRABLE
`Having determined that the parties agreed to arbitrate the claims at issue, I
`must now determine “whether any federal statute or policy renders the claims
`nonarbitrable.” Polyflow, LLC, 993 F.3d at 302. This is easy. There is no statute or
`policy that remotely suggests that I should disregard the unambiguous language in
`the parties’ agreement calling for arbitration. Therefore, the arbitration clause will
`be respected.
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`***
`Although AT&T simply asks that I stay this case pending the outcome of the
`arbitration, I think the better course is to dismiss the case without prejudice and
`allow the parties to proceed with the arbitration. This is consistent with Fifth
`Circuit precedent, which leaves the decision on whether to stay or dismiss a case
`when compelling arbitration to the broad discretion of the district court. See Adam
`Techs. Int’l S.A. de C.V. v. Sutherland Glob. Servs., Inc., 729 F.3d 443, 447 n.1 (5th
`Cir. 2013) (“Although Section 3 of the Federal Arbitration Act directs district courts
`to stay pending arbitration, we are bound by our precedent which states that
`dismissal is appropriate ‘when all of the issues raised in the district court must be
`submitted to arbitration.’” (quoting Alford v. Dean Witter Reynolds, Inc., 975 F.2d
`1161, 1164 (5th Cir. 1992))).
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`CONCLUSION
`For the reasons identified above, I recommend the Court GRANT the
`Motion to Compel Arbitration (Dkt. 11) and DISMISS the case without prejudice
`to refiling.
`The Clerk shall provide copies of this Memorandum and Recommendation
`to the respective parties who have 14 days from the receipt to file written objections
`pursuant to Federal Rule of Civil Procedure 72(b) and General Order 2002–13.
`Failure to file written objections within the time period mentioned shall bar an
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`aggrieved party from attacking the factual findings and legal conclusions on
`appeal.
`SIGNED this 19th day of April 2022.
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`______________________________
`ANDREW M. EDISON
`UNITED STATES MAGISTRATE JUDGE
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