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In the case of an informal unilateral contract, the place of contracting is where the event takes place which makes the promise binding. The existence of a valid agreement to arbitrate is required to compel arbitration. Whether a valid contract to arbitrate exists is a question of state contract law. For a contract to be legally valid and enforceable, it must be factually supported by an offer, an acceptance, consideration, and mutual assent. The burden of proof is on the party asserting that a valid contract exists.
As district manager of defendant Halliburton Energy Services Inc., plaintiff Edward Flemma was involved in the initiative to consolidate three Farmington facilities into one suitable facility. Defendant considered two locations for the consolidated facility, one that was located within the Farmington’s city limits, and one that was located outside. Defendant preferred the former location partly due to tax incentives offered by the city but plaintiff opposed for various reasons, including concerns about the safety of the general public. Plaintiff continued to express his concerns regarding the location, despite warning, when he prepared an executive summary comparing the two locations and reiterating the public safety issues at the said location. Thus, plaintiff was given the option of signing a resignation, general release, and settlement agreement, as well as accepting twelve weeks of base salary, or being terminated on his last day but he refused to sign the documents and was terminated. As a result, plaintiff filed a complaint in district court against defendants for wrongful and retaliatory discharge. Defendant filed a motion to compel arbitration, alleging that plaintiff agreed to a binding arbitration provision in the company's Dispute Resolution Program (DRP), which was adopted in 1997. The district court denied defendant’s motion to compel arbitration but the Court of Appeals reversed. Concluding that the agreement to arbitrate was enforceable under Texas law, the Court of Appeals reasoned that the mere differences between Texas and New Mexico in terms of the evidence required to prove acceptance of and assent to an agreement are not sufficient to overcome the place-of-formation rule on public-policy grounds. Plaintiff appealed.
Was the appellate court correct in concluding that the agreement to arbitrate was enforceable under Texas law?
The judgment was reversed. The court held that the Texas law determined if a valid agreement existed because plaintiff’s continued employment in Texas after notice of the arbitration agreement made it binding, so invited performance began in Texas. Thus, in enforcing the agreement under Texas law, it violated New Mexico public policy because it was substantively unconscionable under New Mexico law, since it unreasonably let an employer amend its terms after a claim accrued and before an arbitration proceeding began. The court also held that there was no valid arbitration agreement was formed under New Mexico law due to lack of consideration because the defendant’s promise to arbitrate was illusory since it could unilaterally amend the agreement after a claim accrued.