Three terms in a written contract between a gentlemen’s club and a deceased employee are not so unclear as to nullify the contract’s arbitration agreement, the Texas Supreme Court ruled in a March 18 per curiam opinion.
In Baby Dolls Topless Saloons Inc., v. Sotero, the Court reversed a court of appeals’ judgment that because the terms “relationship,” “license,” and “this agreement” are not always perfectly clear, there was no meeting of the minds and both the contract and its arbitration provision are unenforceable.
The underlying suit was filed by the family of Stephanie Sotero Hernandez, who was killed in a high speed crash while riding in a car driven by a coworker after the two adult entertainers had left work at Baby Dolls Topless Saloons (the Club). Hernandez’ family alleges that the Club continued serving Salazar alcohol while knowing she was intoxicated.
Two years earlier, Hernandez and the Club had signed a contract giving Hernandez a license to perform at the Club. The contract included a broad arbitration provision. The Club moved to compel arbitration in response to the suit.
A trial court denied the motion, and a divided court of appeals affirmed, agreeing with the family’s argument that the contract’s lack of definiteness and uncertainty in its use of the terms relationship, license and this agreement rendered it meaningless.
The family contends that four provisions in the contract demonstrate the parties’ minds could not have met regarding its subject matter and all its essential terms. The court of appeals pointed to a disparity in how the terms “this agreement” and “the license” are treated throughout the contract.
In laying out its principles for reversing the court of appeals’ judgment, the Court contended that courts should construe contracts to avoid forfeitures whenever possible, including by implying terms that can reasonably be implied.
The Court focused specifically on a provision regarding the contract’s duration clause:
“This Agreement . . . shall terminate on December 31 [2017] . . . . The License shall thereafter be automatically extended for successive one year periods running from January 1 though December 31 of each year thereafter.”
The provision can be read as an automatic renewal as it makes clear that Hernandez’s license is to be automatically extended until the parties say otherwise, the Court argued.
The Court noted that the duration clause refers the parties to additional portions of the contract for examples of “License Termination” events. By referencing additional contract provisions, the provision “indicates that the agreement itself contains the terms describing and governing the license,” clearing up any alleged ambiguities.
“The family’s argument, and the court of appeals’ holding, that Hernandez and the Club never had a meeting of the minds on the contract blinks the reality that they operated under it for almost two years, week after week, before Hernandez’s tragic death. We hold that the parties formed the agreement reflected in the contract they signed,” the Court wrote.
The Court also addressed the family’s argument that even if a valid contract existed at some point, it had expired by the time of Hernandez’s accident. The Court said such a question is for an arbitrator to answer under the Federal Arbitration Act seperability doctrine.
The Court reversed the court of appeals’ judgment and remanded the case to the trial court with instruction to grant the motion to compel arbitration.
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