## Facts

- Jorge Lizalde worked for Vista Quality Markets as a meat-cutter and signed a Mutual Agreement to Arbitrate Claims and an Employment Injury Benefit Plan.
- The arbitration agreement required arbitration of covered claims, including injuries suffered in the course and scope of employment.
- The arbitration agreement allowed Vista to terminate the agreement only prospectively, required reasonable notice, delayed effectiveness for 10 days, and preserved covered claims that accrued or occurred before termination.
- The benefit plan permitted Vista to terminate the plan by notice specifying a termination date, without express limits preserving already-accrued claims.
- Lizalde suffered an on-the-job injury and sued Vista asserting Texas non-subscriber negligence and gross-negligence claims, plus an ERISA discrimination/retaliation claim.
- Vista removed to federal court and moved to compel arbitration; the district court denied the motion, finding the arbitration agreement illusory due to Vista’s unilateral termination power.

## Issues

1. Whether, under Texas contract law, Vista’s unilateral termination powers rendered the arbitration agreement illusory and unenforceable, including in light of the related benefit plan’s broader termination provision.

## Decision

- The Fifth Circuit reversed the order denying Vista’s motion to compel arbitration and remanded with instructions to compel arbitration.
- The court held the arbitration agreement was not illusory because its termination provision was prospective, required notice, and did not affect accrued covered claims.
- The court rejected the argument that the benefit plan’s broader termination clause made the arbitration agreement illusory, treating the plan and arbitration agreement as distinct instruments for purposes of the arbitration obligation.

## Legal Principles

- Under Texas law, an arbitration agreement may be illusory if one party retains an unfettered power to avoid its promise to arbitrate through retroactive amendment or termination.
- A unilateral termination clause generally does not render an arbitration agreement illusory when termination operates only prospectively, accrued claims are preserved, and advance notice is required.
- The existence of a related benefit plan used as consideration, even one with broader termination rights, does not by itself negate an otherwise enforceable arbitration agreement where the arbitration agreement independently limits termination and preserves accrued claims.

## Conclusion

The Fifth Circuit held that Vista’s arbitration promise was enforceable because Vista could not retroactively escape arbitration of accrued claims, and the benefit plan’s termination provision did not override the arbitration agreement’s prospective-only, notice-based termination limits.


Lizalde v. Vista Quality Markets, 746 F.3d 222 (5th Cir. 2014)