Is a wrongful death claim brought by the estate of an erotic dancer subject to binding arbitration? The Texas Supreme Court recently weighed in on this issue.

In Baby Dolls Topless Saloons, Inc. v. Sotero, an erotic dancer, Stephanie Sotero Hernandez, was killed in a tragic crash while riding in a car driven by a coworker after they left work at Baby Dolls Topless Saloon. Hernandez’s family filed a wrongful death lawsuit against Baby Dolls, alleging that Baby Dolls continued to serve Hernandez’s coworker alcohol knowing she was intoxicated. In response to the lawsuit, Baby Dolls moved to compel arbitration based on a broad arbitration provision in a contract signed by Hernandez and Baby Dolls. The contract, signed almost two years earlier, gave Hernandez “a revocable license (the License) and non-exclusive right to use and occupy the designation portions of the [Baby Dolls’ premises]” for “the performing of live erotic dance entertainment and related activities.”

Hernandez’s family argued that Baby Dolls’ motion to compel arbitration should be denied, because there was not a “meeting of the minds” between Hernandez and Baby Dolls. The court of appeals agreed, affirming the trial court’s denial of Baby Dolls’ motion to compel arbitration, as “the parties’ minds could not have met regarding the contract’s subject matter and all its essential terms such that the contract is not an enforceable agreement.” The court of appeals reasoned that the meaning of three terms – “relationship,” “license,” and “agreement” – included in the arbitration provision, and also used elsewhere throughout the contract, was indefinite and uncertain.

In a unanimous opinion, the Texas Supreme Court reversed the court of appeals’ decision. The Texas Supreme Court used three guiding principles of contract construction to determine whether the terms were sufficient to constitute an enforceable contract.

1.   Courts cannot rewrite the parties’ contract but must construe it as a whole to determine the parties’ purposes when they signed it.

2.   Courts should construe contracts to avoid forfeitures, which are disfavored under Texas law, and instead find terms to be sufficiently definite whenever the language is reasonably susceptible to such an interpretation.

3.   When courts construe agreements to avoid forfeiture, they may imply terms that can be reasonably implied.

Applying these principles, the Court determined that the court of appeals’ holding “blinks the reality that [Hernandez and Baby Dolls’] operated under [the contract] for almost two years, week after week, before Hernandez’s tragic death.” Thus, the parties’ actions over a period of almost two years demonstrated that there had been a meeting of the minds between Hernandez and Baby Dolls and the arbitration provision was enforceable.

Hernandez’s family also argued that, even if the arbitration provision was enforceable, it was limited in scope and inapplicable to the wrongful death lawsuit. However, the contract explicitly delegated gateway arbitrability issues like this to the arbitrator. As a result, the Court remanded the case to the trial court with instruction to grant Baby Dolls’ motion to compel arbitration.

The attorneys in our Austin and Dallas offices are available to answer any questions you may have about arbitration provisions.  Please contact us at info@gstexlaw.com.

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