author: CARL E. STEWART, Chief Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee v. Melvin Stanford GORDON, Defendant-Appellant
    No. 15-41510
    United States Court of Appeals, Fifth Circuit.
    FILED September 29, 2016

      Andrew R. Gould, Renata Ann Gowie, Assistant U.S. Attorneys, U.S. Attorney’s Office, Southern District of Texas, Houston, TX, for Plaintiff-Appellee.
    Marjorie A. Meyers, Federal Public Defender, Michael Lance Herman, Scott Andrew Martin, Assistant Federal Public Defenders, Federal Public Defender’s Office, Southern District of Texas, Houston, TX, for. Defendant-Appellant.
    Before STEWART, Chief Judge, and CLEMENT and HAYNES, Circuit Judges.
   CARL E. STEWART, Chief Judge:

Defendant-Appellant Melvin Stanford Gordon pleaded guilty as charged to two counts of transportation of an undocumented alien and one count of possession with intent to distribute less than 50 kilograms (kgs) of marijuana. The district court sentenced Gordon to 41 months’ imprisonment followed by a 3-year term of supervised release which included a special condition that he participate in a mental health program as deemed necessary and approved by the probation officer. For the following reasons we AFFIRM the district court’s judgment imposing 41 months’ imprisonment followed by a 3-year term of supervised release. We VACATE the special condition that Gordon participate in a mental health program and REMAND for further proceedings.

I. Facts & Procedural Background

According to the Presentence Investigation Report (“PSR”), on December 15, 2014, Gordon was driving a Toyota Tercel when he was stopped at a U.S. Border Patrol checkpoint located near Falfurrias, Texas. A service canine alerted to the trunk of Gordon’s vehicle and he consented to a search of the trunk. When the trunk was opened, agents discovered two subjects inside, a minor male and an adult female, who were Mexican citizens illegally present in the United States. The aliens, who were siblings, were covered with clothes and duffle bags, and their faces were red and sweaty. The female required assistance to get out of the trunk because her legs were numb from having ridden in the confined space for so long. Both aliens stated that they were thirsty and agents observed that there was no way for them to exit the trunk independently; it could only be opened from the outside. The service canine then alerted to the backseat of Gordon’s vehicle where agents removed two rear quarter panels and discovered four wrapped bundles totaling 1.13 kgs of marijuana. Gordon was arrested and declined to" provide a statement or answer any questions without an attorney present.

In January 2015, a federal grand jury returned a three-count indictment against Gordon charging him with two counts of transportation of an undocumented alien in violation of 8 UIS.C. § 1324(a)(l)(A)(ii),(B)(ii) and one count of possession with intent to distribute less than 50 kgs of marijuana in violation of 21 U.S.C. § 841(a)(1),(b)(1)(D). In March 2015, without a plea agreement, Gordon pleaded guilty to air three counts in the indictment.

In calculating Gordon’s recommended sentence, the PSR applied the Sentencing Guidelines’ grouping rules, wherein counts involving substantially the same harm are combined into a single group. Ú.S.S.G. §§' 3D1.2(d), 1B1.3. Under these rules, the total combined adjusted offense level was determined to be 18.

Next, the PSR recommended application of the “career offender” enhancement pursuant to U.S.S.G. § 4B1.1, because Gordon was at least 18 years old when convicted of the instant felony controlled substance offense and he had at least two prior felony convictions for controlled substance offenses. The offense level for a career offender is 17, but because Gordon’s combined adjusted offense level was greater than 17, ie,, 18, the higher offense level was used. Gordon’s offense level was then reduced by 3 for acceptance of responsibility. U.S.S.G. § 8El.l(a),(b). Thus, Gordon’s total recommended offense level was 15.

The PSR determined that Gordon’s criminal history score was 9, which established a criminal history category of IV. However, in light of Gordon’s designation as a “career offender” under U.S.S.G. § 4Bl.l(a), his criminal history category was increased to VI. U.S.S.G. § 4Bl.l(b).

With a total offense level of 15 and a criminal history category of VI, the recommended Guidelines range was 41-51 months’ imprisonment. U.S.S.G. Sentencing' Table, Ch, 5, pt. A. Paragraph 57 of the PSR states that “[t]he defendant reported no history of mental or emotional health related problems and this investigation has revealed no information to indicate otherwise.”

Gordon’s sentencing hearing was held in October 2015. During the hearing Gordon objected, arguing that because the PSR applied the higher adjusted offense level of 18, rather than the career offender offense level of ,17 under Section 4Bl.l(b), he should not have been assigned the career offender criminal history category of VI under that subsection. The district court overruled Gordon’s objection and accepted the PSR’s recommended offense level of 15,- criminal history category of VI, and sentencing range of 41-51 months’ imprisonment. The district court sentenced Gordon to 41 months’ imprisonment for each of the three counts, to run concurrently. The district court then imposed a 3-year term of supervised release. With respect to the supervised release term, the district court specified as follows:

Based on the information in the report, I’m going to order drug and/or alcohol treatment as deemed necessary and approved by the probation officer, as well as require you to participate in anger management counseling as deemed necessary and approved by the probation officer, as well as require you to participate in a mental health program as deemed necessary and approved by the probation officer. The Court will not impose a fine. The Court has considered the advisory guideline sentencing factors set forth in 3553. The Court finds that the sentence imposed is sufficient but not greater than necessary to impose an appropriate sentence. The Court finds the sentence promotes respect for the law and provides just punishment.

Gordon did not object at the sentencing hearing to the mental health program special condition and in November 2015, timely filed this appeal.

II. Discussion

A. Application of the Sentencing Guidelines

Gordon first argues on appeal that the district court erred in determining that he qualified as a career offender with a criminal history category designation of VI under subsection (b) of Section 4B1.1 when it did not also apply the offense level from the table in that subsection.

We review a sentencing decision for reasonableness. Gall v. United States, 552 U.S. 38, 46, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). We first “determine[ ] whether the district court committed any significant procedural err'or.” United States v. Groce, 784 F.3d 291, 294 (5th Cir. 2015). In this step, the district court’s interpretation or application of the Sentencing Guidelines is reviewed de 'novo and its factual findings are reviewed for clear error. Id. (citation omitted). Next, “[i]f there is no procedural error or the error is harmless, this court then reviews the substantive reasonableness of the sentence imposed for an abuse of discretion.” Id.

Section 4B1.1 of- the Guidelines provides in part:

(a) A defendant is a career offender if (1) the defendant was at least eighteen years old at the time the defendant committed the instant offense of conviction; ’ (2) the instant offense of conviction is a felony that is either a crime of violence or a controlled substance offense; and (3) the defendant has at least two prior felony convictions of either a crime of violence or a controlled substance offense.
(b) Except as provided in subsection (c), if the offense level for a career offender from the table in this subsection is greater than the offense level otherwise applicable, the offense level from the table in this subsection shall apply. A career offender’s criminal history category in every case under this subsection shall be Category VI.
Offense Statutory Maximum Offense Level
(6) 5 years or more, but 17 less than 10 years
(c) If the defendant is convicted of 18 U.S.C. § 924(c) or § 929(a), and the defendant is determined to be a career offender under subsection (a), the applicable guideline range shall be determined as follows....

U.S.S.G. § 4Bl.l(a)-(c).

The issue of whether a case “arises under” subsection (b) of Section 4B1.1 of the career offender guideline when the district court does not also apply the offense level from the table in that ‘ subsection is res nova iii this circuit. The Eleventh Circuit was the first to expressly address the issue in United States, v. Marseille, 377 F.3d 1249 (11th Cir. 2004). In that case, the defendant, like Gordon, argued that “his case does not, in the final analysis, come under subsection (b) because the district court did not apply the offense level table in that subsection to determine [the defendant’s] offense level.” Marseille, 377 F.3d at 1256. There, rather than applying the offense level from the table under subsection (b), the district court applied the offense level under the armed criminal career guideline because it was greater. Id. In rejecting the defendant’s argument, the Eleventh Circuit explained:

[The defendant] mistakenly concludes from the fact that § 4Bl.l(b) did not produce the offense level the district court ultimately applied, that the career offender guideline was not applicable at all. In fact, the district court applied both the career offender and armed career criminal guidelines, but followed the direction of both guidelines by holding that a greater offense level overrides a lesser offense level.
We hold that a case arises under subsection (b) of the career offender guideline in every case in which the defendant qualifies as a career offender under subsection (a). The sole exception to this rule is the one provided for by subsection (b) itself, which explicitly takes those defendants convicted under 18 U.S.C. § 924(c) or 18 U.S.C. § 929(a) out of the purview of the subsection. USSG § 4Bl.l(b). Consequently, [the defendant’s] case does arise under the career offender guideline, and the district court properly determined that [the defendant’s] criminal history category is VI.

Id. at 1256-57 (footnote omitted).

Soon thereafter, the D.C. Circuit expressed agreement with the Eleventh Circuit’s interpretation of the Guidelines, noting that “[Section] 4Bl.l(b) says that ‘a career offender’s criminal history category in every case under this subsection shall be Category VI,’ not merely in cases in which the career offender classification accounted for the base offense level.” United States v. Miller, 395 F.3d 452, 456 (D.C. Cir.), vacated on other grounds by Miller v. United States, 545 U.S. 1101, 125 S.Ct. 2554, 162 L.Ed.2d 272 (2005) (alterations omitted) (quoting Marseille, 377 F.3d at 1256-57).

In United States v. Waters, 648 F.3d 1114 (9th Cir. 2011), the Ninth Circuit also affirmed a district court’s similar interpretation of Section 4B1.1. There, the district court applied a greater otherwise applicable offense level because it exceeded the offense level provided in the table under that subsection, yet proceeded to assign the defendant a criminal history category of VI, citing Section 4Bl.l(b)’s express language that “[a] career offender’s criminal history category in every case under this subsection shall be Category VI.” Id. at 1115 (citing U.S.S.G. § 4Bl.l(b)). The Ninth Circuit upheld the district court’s application of the Guidelines in this regard, signaling agreement with the Eleventh and D.C. Circuits. Id. at 1118-19 (“[The defendant] was sentenced under both of these guidelines provisions [§ 4Bl.l(b) and § 2Dl.l(c) ]—and properly so.”).

Our review of the plain text of the Guidelines supports these circuit court interpretations of Section 4Bl.l(b). In interpreting the Guidelines, this court applies “the ordinary rules of statutory construction.” United States v. Serfass, 684 F.3d 548, 551 (5th Cir. 2012). If “the language of the guideline is unambiguous, the plain meaning of that language is controlling unless it creates an absurd result.” Id.

It is undisputed that Gordon qualifies as a career offender under subsection (a) and does not qualify for the carve-out provided in subsection (c) for offenders convicted under 18 U.S.C. § 924(c) or § 929(a). See U.S.S.G. § 4Bl.l(a),(c). Thus, under subsection (b), the district court is required to apply that subsection’s offense level only if it is greater than the “offense level, otherwise applicable.” Id. § 4Bl.l(b). Consequently, the district court applied the otherwise applicable adjusted combined offense level of 18, since .it was greater than the offense level provided in the table in subsection (b)—level 17. There is nothing in the subsection that suggests, however, that applying the “offense level otherwise applicable” somehow removes the district court from the purview of subsection (b). Id. A more reasonable reading is that by applying the “otherwise applicable” offense level, the district court’s application fell under that subsection, since doing so required it to follow the explicit instructions set forth therein. See id. The final sentence in that subsection states that “[a] career offender’s criminal history category in every ease under this subsection shall be Category VI.” Id. This language is unambiguous. If a defendant is designated as a career offender under subsection (a) and his case falls under subsection '(b), and he is not exempted under subsection (c), he will be assigned a criminal history category of VI, as the district court did here. :

In sum, because we find the reasoning in Marseille; Miller, and Waters persuasive and supported by the plain text of the Guidelines, we now join our sister circuits in holding that, notwithstanding the. express exceptions set forth in subsection (c), “a case arises under subsection (b) of the career offender guideline in every case in which the defendant qualifies as a career offender under subsection (a).” Marseille, 377 F.3d at 1257; see Miller, 395 F.3d at 456; cf. Waters, 648 F.3d at 1118-19.

B. Mental Health Program Special Con- . dition

Second, Gordon argues that the district court committed reversible plain error by imposing a special condition of supervised release requiring him to participate in a mental health program “as deemed necessary and approved by the probation officer.” The Government does not challenge Gordon’s position on this issue and instead requests that this court vacate and strike the special condition as unsupported by the record evidence.

This court typically reviews the imposition of a special condition of supervised release for abuse of discretion. United States v. Rodriguez, 558 F.3d 408, 411 (5th Cir. 2009) (citation omitted). However, because Gordon failed to object at the district court proceedings, plain error review applies. United States v. Peltier, 505 F.3d 389, 391 (5th Cir. 2007). “Plain error exists if (1)' there is an error, (2) the error is plain, ... (3) the error affeet[s] substantial rights and (4) the error seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.” United States v. Garcia-Carrillo, 749 F.3d 376, 378 (5th Cir. 2014) (per curiam) (internal quotation marks omitted). “We determine whether an alleged error is plain by reference to existing law at the time of appeal.” United States v. Bishop, 603 F.3d 279, 281 (5th Cir. 2010).

The district court has wide discretion to impose upon a defendant a term of supervised release as part of its sentencing decision. United States v. Salazar, 743 F.3d 445, 451 (5th Cir. 2014) (citation omitted); 18 U.S.C. § 3583(d). However, “such conditions must be reasonably related-to one of the following statutory factors: (i) the nature and circumstances of the offense and the history and characteristics of the defendant; (ii) the need to afford adequate deterrence to criminal conduct; (iii) the need to protect the public from further crimes of the defendant; and (iv) the need to provide the defendant with needed training, medical care, or other correctional treatment in the most effective manner.” Salazar, 743 F.3d at 451 (citing 18 U.S.C. § 3553(a)(l)-(2)). If a condition is reasonably related to any of these four factors, it satisfies the requirements. Id. (citation omitted). “[Supervised release conditions cannot involve a greater deprivation of liberty than is reasonably necessary to achieve the statutory goals.” Id. (internal quotation marks omitted). A sentencing court is required “to state the reasons for its imposition of the particular sentence.” Id. (internal quotation marks omitted). Where the district court’s rationale is unclear, however, this court can affirm when its “reasoning can be inferred after an examination of the record.” Id.

Here, the . Government and Gordon'both agree that the district court’s imposition of the special condition requiring Gordon to participate in mental health counseling is unsupported by the record. The parties both direct this court to the part of the district court’s order requiring Gordon to participate in anger management counseling as part of his supervised release conditions. They submit that the anger management counseling requirement addresses any issues apparent in the record involving Gordon’s history of anger and violence, thereby rendering the mental health treatment requirement superfluous given the absence of any record evidence indicating that he has a questionable mental health history or a particular diagnosis requiring mental health treatment. We find these arguments persuasive.

The distoict court stated that it was imposing the special condition “based on the information in the report.” Although there is nothing in the PSR relating to a history of mental health treatment, the CSR stated that it recommended the mental health treatment “based on the violent nature of two of the defendant’s prior convictions and the pending charge.” These reasons, however, only relate to the district court’s imposition of anger management counseling, not' mental health treatment. Consequently, we conclude that the district court’s imposition of the mental health condition is not reasonably related to any of the Section 3553 factors, nor .can it be inferred from an examination of the record before us. See Salazar, 743 F.3d at 451 (citing 18 U.S.C. § 3553(a)(l)-(2)). As such, the district court plainly erred in imposing the mental health special'condition. See García-Carrillo, 749 F.3d at 378. We further conclude that the error affected Gordon’s substantial rights. See id. The imposition of the mental health treatment at Gordon’s cost will present a significant financial burden, require him to attend multiple sets of treatment, and as Gordon points out, result in an unwarranted perception that he requires mental health treatment. See id. For these reasons, we find the exercise of this court’s discretion to correct the error warranted under these circumstances. Id. at 378-79; see United States v. Olano, 507 U.S. 725, 736, 113 5.Ct. 1770, 123 L.Ed.2d 508 (1993) (“The Court of Appeals should correct a plain forfeited error affecting substantial rights if the error ‘seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.’ ”). Accordingly, we vacate the special condition of supervised release imposed by the district court requiring Gordon to participate in mental health treatment as deemed necessary and approved by the probation officer.

III. Conclusion

In . light of the foregoing, we AFFIRM the district court’s judgment imposing 41 months’ imprisonment followed by a 3.-year term of supervised release. We VACATE the special condition requiring the Defendant-Appellant to participate in a mental health program and REMAND for further proceedings consistent with this opinion.

      . The PSR indicates that the minor male was seventeen years old.

      . Gordon does not appeal thé application of the grouping rules to the calculation of his sentence.

      . The record contains a separate sealed “Confidential Sentencing Recommendation” (“CSR”) signed by the Acting Chief and .Supervising Probation Officers, that was filed on the same day as the PSR, where a separate " discussion of Gordon's mental health is detailed. The CSR recommends a 3-year term of supervised release with a special condition that Gordon undergo drug and alcohol treatment, anger management counseling, and that he participate in a mental health program “as deemed necessary and approved by the probation officer.” In a paragraph labeled "Justification,” the CSR states that "[a]nger management and mental health counseling are recommended based on the violent nature of two of the defendant’s prior convictions and the pending charge.”

      . Gordon argues for the first time in his reply brief that the rule of lenity compels this court’s adoption of his alternative interpretation of the Guidelines. See United States v. Bustillos-Pena, 612 F.3d 863, 868-69 (5th Cir. 2010) ("Although the provisions of the Sentencing Guidelines are not statutes, we apply the rule of lenity to them when we find that they are ambiguous.”). We disagree for two reasons. First, our plain text reading of Section 4B1.1 does not indicate that it is ambiguous. See id. at 868. Second, in light of our aforementioned reasoning, we do not find plausible Gordon’s interpretation that a case only arises under Section 4B 1.1(b) when the district court also applies the offense level from the table under that subsection. Moreover, we ordinarily do not consider arguments raised for the first time on appeal in a reply brief. See Hardman v. Colvin, 820 F.3d 142, 152 (5th Cir. 2016).

      . We also note that these circuit court interpretations of the Guidelines support the congressional directive that career offenders receive a sentence of imprisonment "at Or near the maximum term authorized.” U.S.S.G. § 4B1.1 cmt, backg’d (2004); see United States v. Cashaw, 625 F.3d 271, 274 (5th Cir. 2010).

      . Because we vacate the mental health special condition on these grounds, we need not reach Gordon’s alternative argument that the district court’s imposition of the condition was an impermissible delegation of judicial authority.


source: Caselaw Access Project

author: EDITH BROWN CLEMENT, Circuit Judge: HAYNES, Circuit Judge,

license: Public Domain

text:
    John T. HAYS, M.D., Plaintiff-Appellant v. HCA HOLDINGS, INCORPORATED; HCA Physician Services, Incorporated, Defendants-Appellees
    No. 15-51002
    United States Court of Appeals, Fifth Circuit.
    FILED September 29, 2016

      Kevin James Terrazas, Esq., Timothy A, Cleveland, Cleveland Terrazas, P.L.L.C., Kevin James. Terrazas, Esq., Sara Janes, Nicole Susanne-LeFave, Weisbart Springer Hayes, L.L.P., Austin, TX, for Plaintiff-Appellant.
    Elizabeth D. Alvarado, Esq., Carlos Alberto Mattioli, George A. Shannon, Jr., Shannon, Martin, Finkelstéin, Alvarado & Dunne, P.C., Michael P. Jones, Nancy Lynne Patterson, Morgan, Lewis & Bocki-us, L.L.P., Houston, TX, for Defendants-Appellees.
    Before STEWART, .Chief Judge, and CLEMENT and HAYNES, Circuit Judges.
   EDITH BROWN CLEMENT, Circuit Judge:

Plaintiff-Appellant Dr, John T. Hays suffers from epilepsy. After a series of stress-related seizures, he was fired from his cardiology practice. He brought several claims against Defendant-Appellees HCA Holdings, Inc. and HCA Physician Services, Inc: (collectively “HCA”) arising out of his alleged wrongful termination. The district court ordered arbitration of his claims based on equitable estoppel. We AFFIRM.

L

Hays worked as a cardiologist and contends that HCA failed to accommodate his requests for a limited workload, which caused him to suffer an increased number of stress-related seizures and eventually led to his'firing. Initially, Hays sued HCA Holdings, Capital Area Cardiology (“CAC”), and Austin Heart, PLLC, in Texas state court for negligence and for violation of the Texas Commission on Human Rights Act (“TCHRA”). He also sought- a declaratory judgment that his Physician Employment Agreement (the “Agreement”) was not a valid and enforceable contract. But the Agreement, to which Austin Heart, CAC, and Hays were signatories,' required that any disputes relating to the Agreement be submitted to mandatory, binding arbitration. Because of the arbitration clause, the state court granted Austin Heart and CAC’s motion to dismiss and compel arbitration. Continuing to litigate against HCA Holdings, Hays amended his state court petition to add HCA Physician' Services as a defendant. HCA removed the case to federal court. Hays then amended his complaint to assert claims for wrongful termination in violation of TCHRA, negligence, breach of contract, and tortious interference with at-will employment.

HCA moved to dismiss and compel arbitration on all claims based on equitable estoppel. The district court granted the motion. Applying Texas law, the district court explained that a non-signatory to an agreement could enforce an arbitration clause pursuant to equitable estoppel, and that Texas has explicitly recognized direct benefits estoppel and has implicitly authorized intertwined claims estoppel. Because HCA’s liability under the tortious interference claim could not “be determined without reference to the- Physician Employment Agreement,” the district court applied direct benefits estoppel-and concluded that Hays must arbitrate that claim. As to Hays’s claims for wrongful termination, breach of contract, and negligence, the district court determined that intertwined claims estoppel applied. Relying on JLM Industries, Inc. v. Stolt-Nielsen, SA, 387 F.3d 163 (2d Cir. 2004), which the Texas Supreme Court discussed in In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 186, 193-94 (Tex. 2007), the district court found that Hays had treated Austin Heart, CAC, and HAC “as a single unit in its pleadings” and had raised “virtually indistinguishable factual allegations” against all defendants. The district court concluded that Hays’s pleadings satisfied the “close relationship” test for intertwined claims estoppel. Because all of Hays’s claims were subject to arbitration on equitable estoppel grounds, the district court ordered arbitration and dismissed the case with prejudice. Hays timely appealed.

II.

We review “an order compelling arbitration de novo.” Cranford Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 256 (5th Cir, 2014). We review for an abuse of discretion the district court’s use of equitable estoppel to compel arbitration. Id, “A district court abuses its discretion if it premises its decision on an erroneous application of the law or a clearly erroneous assessment of the evidence.” Gross v. GGNSC Southaven, LLC, 817 F.3d 169, 175 (5th Cir. 2016). We “may affirm the district court’s judgment on any basis supported by the record.” In re Complaint of Settoon Towing, LLC, 720 F.3d 268,280 (5th Cir. 2013).

III.

Hays contends that the district court abused its discretion in compelling arbitration on his claims under equitable estoppel.

A. Direct Benefits Estoppel

Hays maintains that the district court erred in applying direct benefits es-toppel to his tortious interference claim.

Direct benefits estoppel applies when the claim depends on the contract’s existence and would be “unable to ‘stand independently’ without the contract.” G.T. Leach Builders, 458 S.W.3d at 528 (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739-40 (Tex. 2005)). “Whether a claim seeks, a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading.” Id. at 527. “‘[W]hen the substance of the claim arises from general obligations imposed by state law, including statutes, torts and other common law duties, or federal law,’ rather than from contract, ‘direct benefits’ estoppel does not apply, even if the claim refers to or relates to the contract.” Id. at, 528 (quoting In re Morgan Stanley & Co., 293 S.W.3d 182, 184 n.2 (Tex. 2009)).

Here, Hays pled his tortious interference with at-will employment claim in the alternative, stating that the claim applies only if HCA is not found to be his employer. In so pleading, Hays essentially alleges that HCA tortiously interfered with his at-will employment relationship with Austin Heart and CAC. The viability of this claim, however, depends on reference to the Agreement. Cf. In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 762 (Tex. 2006) (“[T]or-tious interference claims between a signatory to an arbitration agreement and agents or affiliates of the other signatory arise more from the contract than general law, and thus fall on the arbitration side of the scale.”). As the district court correctly recognized, an at-will employment relationship may exist even if the parties have entered into an employment contract, such as the Agreement. C.S.C.S., Inc. v. Carter, 129 S.W.3d 584, 591 (Tex. App.-Dallas 2003, no pet.) (“A contract of employment for a term may still be at-will if the agreement allows termination for any reason.”). Because the Agreement would define the employment relationship, even at-will employment, between Hays and Austin Heart and CAC, any alleged liability for tortious interference by HCA “must be determined by reference” to the Agreement. G.T. Leach Builders, 458 S.W.3d at 528 (quoting In re Weekley Homes, LP, 180 S.W.3d 127, 132 (Tex. 2005)). Thus, HCA’s liability depends on the Agreement and the district court did not abuse its discretion in applying direct benefits estoppel to Hays’s tortious interference claim.

B. Intertwined Claims Estoppel

Hays argues that the district court erred by applying intertwined claims es-toppel to his remaining claims. He contends that Texas does not recognize that theory of estoppel, and even if it did, the theory is inapplicable here.

Intertwined claims estoppel involves “compel[ing] arbitration when a nonsignatory defendant has a ‘close relationship’ with one of the signatories and the claims are ‘intimately founded in and intertwined with the underlying contract obligations.’ ” In re Merrill Lynch, 235 S.W.3d at 193-94 (quoting Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995)); see Denney v. BDO Seidman, LLP, 412 F.3d 58, 70-71 (2d Cir. 2005). It applies when there is a “tight relatedness of the parties, contracts, and controversies.” JLM Indus., 387 F.3d at 177. Courts have employed this exception to dismiss “strategic pleading” that seeks to avoid arbitration. In re Merrill Lynch, 235 S.W.3d at 194.

As Hays correctly notes, the Texas Supreme Court has not expressly adopted intertwined claims estoppel as a valid theory of estoppel. The Texas Supreme Court acknowledged in Merrill Lynch that “other federal circuits have estopped signatory plaintiffs from avoiding arbitration with nonsignatories using an ‘intertwined-claims’ test.” 235 S.W.3d at 193. But the court referenced it for the purpose of comparing that theory with concerted misconduct estoppel, which the court went on to reject. Id. at 193-95. Distinguishing the two, the Texas Supreme Court explained that concerted misconduct estoppel lacks the limiting “close relationship” component of intertwined claims estoppel. Id. at 194; see In re Banc One Inv. Advisors Corp., No. 01-07-01021-CV, 2008 WL 340507, at *2 (Tex. App.-Houston Feb. 7, 2008, no pet.) (indicating that the “close relationship” test is “distinct from concerted misconduct”).

Texas courts of appeals, after Merrill Lynch, have split on whether the Texas Supreme Court has recognized intertwined claims estoppel. Compare Cotton Commercial USA, Inc. v. Clear Creek Indep. Sch. Dist., 387 S.W.3d 99, 105-06 (Tex. App.Houston [14th Dist.] 2012, no pet.) (stating that the Texas Supreme Court in Merrill Lynch recognized intertwined claims es-toppel), and FD Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688, 695 (Tex. App.-Houston [1st Dist.] 2014), reh’g overruled (July 29, 2014), review denied (Nov. 7, 2014) (“If the facts alleged ‘touch matters,’ have a ‘significant relationship’ to, are ‘inextricably enmeshed’ with, or are ‘factually intertwined’ with the contract containing the arbitration agreement, the claim is arbitrable.” (quoting Cotton Commercial USA, 387 S.W.3d at 108)), and Zars v. Brownlow, No. 07-07-00303-CV, 2013 WL 3355660, at *4 (Tex. App.-Amarillo June 28, 2013, no pet.) (same), with Glassell Producing Co. v. Jared Res., Ltd., 422 S.W.3d 68, 82 (Tex. App.-Texarkana 2014, no pet.) (describing direct benefits estoppel as “the only form of equitable estoppel recognized in Texas”).

And this court has never directly addressed the issue. Although Hays makes much of Al Rushaid v. National Oilwell Varco, Inc., No. 11-CV-3390, 2015 WL 1602125, at *5 (S.D. Tex. Apr. 7, 2015)—a district court decision that criticized Cotton Commercial and rejected intertwined claims estoppel—this court did not decide the validity of intertwined claims estoppel on appeal, see Al Rushaid, 814 F.3d at 305. Instead, the Al Rushaid panel explained that the appellants had advanced concerted misconduct and direct benefits estoppel, and cited the language from Glassell that “the only form of equitable estoppel recognized in Texas” is direct benefits. Id. (quoting Glassell Producing Co., 422 S.W.3d at 82). Conversely, a prior panel of this court relied on Cotton Commercial to analyze the applicability of intertwined claims estoppel. Zinante v. Drive Elec., LLC, 582 Fed.Appx. 368, 370-71 (5th Cir. 2014). The Zinante panel held that the theory was inapt, but did not question its legitimacy.

Because no decision of the Texas Supreme Court precisely recognizes intertwined claims estoppel, we “must make an Erie guess and determine as best we can what the Supreme Court of Texas would decide.” Harris Cty. v. MERSCORP Inc., 791 F.3d 545, 551 (5th Cir. 2015) (internal quotation marks and citation omitted). In making an Erie guess, we use “the sources of law that the state’s highest court would look to,” Symetra Life Ins. Co. v. Rapid Settlements, Ltd., 775 F.3d 242, 248 (5th Cir. 2014), including intermediate state appellate court decisions, “the general rule on the issue, decisions from other jurisdictions, and general policy concerns.” Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir. 2010).

In Merrill Lynch, the Texas Supreme Court strongly implied the validity of this form of estoppel, particularly to counter the problem of strategic pleading: “[All-lowing litigation to proceed that is in substance against a signatory though in form against a nonsignatory would allow indirectly what cannot be done directly.” 235 S.W.3d at 193-94. The court observed that intertwined claims estoppel works to prevent signatories to an arbitration agreement from avoiding arbitration simply by suing “nonsignatory principals or agents for pulling the strings.” Id. at 194. To illustrate, the court explained that the Second Circuit has “compelled arbitration when a nonsignatory defendant has a ‘close relationship’ with one of the signatories and the claims are ‘intimately founded in and intertwined with the underlying contract obligations.’” Id. at 193-94, 194 n.39 (quoting Thomsorir-CSF, S.A., 64 F.3d at 779, and collecting Second Circuit cases that apply intertwined claims estoppel, including Denney, 412 F.3d at 70 and JLM Industries, 387 F.3d at 177). And the court approvingly noted that the “close relationship” requirement guards against “sweeping] independent entities and even complete strangers into arbitration agreements,” limiting the exception to instances of strategic pleading. Id. at 194.

Looking to intermediate state court decisions, Texas courts of appeals have compelled arbitration pursuant to intertwined claims estoppel. See e.g., Cotton Commercial USA, 387 S.W.3d at 102; FD Frontier Drilling (Cyprus), 438 S.W.3d at 695; Zars, 2013 WL 3355660, at *4. In Cotton Commercial, after a school district sued a property restoration services company, the company moved to arbitrate. 387 S.W.3d at 101. Prior to the suit, the contractor and subcontractor, who had worked on the school, had merged to form the surviving property restoration company. Although the school had entered into a restoration agreement with the contractor, which contained an arbitration,clause, the schooldis-trict argued that it could not be compelled to arbitrate because its claims for fraudulent billings were against only the subcontractor. Id, at 102-04. In assessing whether arbitration was appropriate, the court of appeals noted that a, corporate relationship between the parties, standing alone, is insufficient to compel arbitration. Id. at 105.

But the appeals court, relying on Memll Lynch, recognized the applicability of the intertwined claims test “where a nonsigna-tory has a “close relationship” with one of the signatories and the claims are “intimately founded in and intertwined with the underlying contract obligations.” Id. (quoting In re Merrill Lynch, 235 S.W.3d at 191). The court ordered arbitration because of the parties’ close relationship and because the subcontractor’s billings were intertwined with the restoration agreement. Id. at 105-06.

Finally, ■ as a policy matter, “both federal and state jurisprudence dictate that any doubt as to whether a controversy is arbitrable should be resolved in favor of arbitration.” McKee v. Home Buyers Warranty Corp., 45 F.3d 981, 985 (5th Cir. 1995). Texas “strongly favor[s]” arbitration. Star Sys. Int’l Ltd. v. SM Co., No. 05-15-00669, 2016 WL 2970272, at *2 (Tex. App. May 19, 2016) (citing Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499 (Tex. 2015)). And “questions of arbitrability must [also] be addressed with a healthy regard 'for the federal policy favoring arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

Because Merrill Lynch intimated at the validity of intertwined claims estop-pel, because lower, courts in Texas have applied the theory, and because arbitration of disputes is strongly favored under federal and state policy, we hold that the Texas Supreme Court, if faced with the question, would adopt intertwined claims estoppel. Accordingly, we hold that Hays must arbitrate his TCHRA, negligence, and breach of contract claims pursuant to intertwined claims estoppel.

Hays treats Austin Heart, CAC, and HAC as a single unit in his pleadings, raising virtually indistinguishable factual allegations against CAC and Austin Heart in arbitration and against HCA here. See JLM Indus., 387 F.3d at 177; Smith/Enron Cogeneration Ltd. P’ship v. Smith Cogeneration Int’l Inc., 198 F.3d 88, 98 (2d Cir. 1999) (affirming arbitration order where the plaintiff treated nonsignatory companies and their signatory assignees as a “single unit in its complaint”). His complaint in this action and his counter-demand in arbitration use almost identical language, substituting only the names of the defendants. As the district court correctly recognized, Hays treated Austin Heart, CAC, and .HAC—affiliates of his former cardiology practice—as if they were interchangeable. See Smith/Enron, 198 F.3d at 97-98. It is undeniable that Hays regarded the parties as closely related by failing to differentiate his factual allegations. Moreover, Hays’s claims both here and in arbitration relate to his alleged wrongful termination, intertwined with the underlying contractual obligations of the Agreement. There is a “tight relatedness of the parties, contracts and controversies.” JLM Indus., 387 F.3d at 177. Hays’s current efforts to distinguish amongst defendants and claims are .the archetype of strategic pleading intended to avoid the arbitral forum, precisely what intertwined claims estoppel is designed to prevent. We hold that .the district court did not abuse its discretion in applying intertwined claims estoppel to compel Hays to arbitrate his remaining claims.

IV.

We hold that the district court did not abuse its discretion in ordering arbitration of Hays’s claims against HCA. Specifically, we hold that the district court properly applied direct benefits estoppel to Hays’s tortious interference claim. And in making an Erie guess, we hold that the Texas Supreme Court would recognize intertwined claims estoppel and that Hays’s remaining claims are subject to arbitration under that theory.

HAYNES, Circuit Judge,

concurring:

I concur in the judgment of the court. However, I do not join in all of the underlying reasoning. Specifically, I would not reach the issue of intertwined claims es-toppel addressed in Section III.B. (and part of IV) because it is unnecessary to do so. I conclude that all of Hays’s claims either clearly meet the test for direct benefits estoppel or constitute the kind of “artful pleading” designed to avoid direct benefits estoppel that the Texas Supreme Court found ineffectual to do so in In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 188-90 (Tex. 2007). Put another way, the.Texas Supreme Court made clear that a party cannot avoid the effects of direct benefits estoppel by “artful pleading.” Id. That is what Hays endeavored to do here. Existing law, without the need for an “Erie guess,” thus supports the district court’s order sending all of these claims to arbitration. Thus, I concur in the judgment affirming the district court but do not join the discussion of intertwined claims estop-pel.

      . Hays opens by arguing that the district court erred because there is no contract between him and HCA that compels arbitration. But his argument is without merit. First, although HCA is not a signatory to the Agreement, a contract to arbitrate may be enforceable by a non-signatory if authorized by applicable state law. Crawford Prof'l Drugs, 748 F.3d at 257; accord Al Rushaid v. Nat'l Oilwell Varco, Inc., 814 F.3d 300, 305 (5th Cir. 2016). Texas law governs here, and Texas courts have recognized that "a non-signatory can be bound to, or permitted to enforce, an arbitration agreement’’ based on equitable estoppel grounds. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 524 (Tex. 2015). Second, insofar as Hays attacks the validity of the Agreement as a whole, determinations of the validity of a contract are left to the arbitrator. See Brown v. Pac. Life Ins. Co., 462 F.3d 384, 397 (5th Cir. 2006).

      . Indeed, Hays "acknowledges that his alternatively pled tortious interference claim is dependent on a determination of whether the Agreement is enforceable.”

      . "Our cases have recognized that under principles of estoppel, a non-signatory to an arbitration agreement may compel a signatory to that agreement to arbitrate a dispute where a careful review of 'the relationship among the parties, the contracts they signed ... and the issues that had arisen' among them discloses that 'the issues the nonsignato-ry is seeking to resolve in arbitration are intertwined with the agreement that the es-topped party has signed.’ " JLM Indus., 387 F.3d at 177.

      . Some imprecision exists when distinguishing between intertwined claims and concerted misconduct estoppel. This court used the phrase "intertwined claims” in Grigson v. Creative Artists Agency LLC, 210 F.3d 524 (5th Cir. 2000), but did so in reference to concerted misconduct estoppel. Conversely, the Texas Supreme Court, in Merrill Lynch, differentiated between Grigson’s concerted misconduct test (which it went on to reject) and the theory of intertwined claims estoppel. 235 S.W.3d at 192-93.

      . It - was this possibility of overinclusiveness that led the Texas Supreme Court, in Merrill Lynch, to reject concerted misconduct estop-pel. Id. In making an Erie guess, it is noteworthy that in Merrill Lynch the Texas Supreme Court distinguished concerted misconduct and intertwined claims estoppel, explicitly disallowing the former while noting the relevancy and value of the latter. Id.

      . In Glassell Producing Co., a Texas court of appeals stated that direct benefits estoppel is the only form of equitable estoppel recognized in Texas. 422 S.W.3d at 82. But the court acknowledged that the Texas . Supreme Court had only explicitly rejected the concerted misconduct test. Id.


author: KING, Circuit Judge:

text:
    Patrick SIMMS, Plaintiff-Appellant, v. LOCAL 1752, INTERNATIONAL LONGSHOREMEN ASSOCIATION, Defendant-Appellee.
    No. 16-60073
    United States Court of Appeals, Fifth Circuit.
    FILED September 29, 2016

      William L. Messenger, Brandon Rowland, National Right to Work Legal Defense Foundation, Springfield, VA, for Plaintiff-Appellant.
    J. Cecil Gardner, Thomas Matthew Lop-er, Esq., Gardner Firm, P.C., Mobile, AL, James B. Coppess, AFL-CIO, Samuel Huntington Heldman, Gardner Firm, Washington, DC, for Defendant-Appellee.
    Before KING, SMITH, and COSTA, Circuit Judges.
   KING, Circuit Judge:

Patrick Simms, who is not a union member, was denied referral for employment because he refused to pay a fee to use the union’s hiring hall. The district court dismissed his suit asserting that the fee was unlawful. We find no error and AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

As alleged in the complaint, CSA Equipment Company, LLC (“CSA”) and Defendant-Appellee International Longshoremen Association Local 1752 (“Local 1752”) are parties to a collective bargaining agreement, and as part of this agreement, CSA must hire all of its clerks and other employees through the hiring hall operated by Local 1752. “[A]s a condition of obtaining employment through [Local 1752’s] hiring hall,” an individual must either be a union member or pay a “service fee.” CSA assists in the collection of this fee by deducting the amount due from the employee’s paycheck if the employee signs a checkoff authorization card.

' Plaintiff-Appellant Patrick Simms works for CSA primarily as a clerk in charge and, therefore, is required to use Local 1752’s hiring hall. Simms is not a member of Local 1752 and did hot make the required payments to Local 1752 for use of its hiring hall. Local 1752 sent Simms a letter stating, in part, that “to , be in good standing [Simms] must either pay Hiring Hall fees or be a dues paying member of one of the Locals,” and since Simms was not a union member, he “must make some arrangement with the Hiring Hall and the Locals to pay the Hiring Hall fees related to being referred for work.” If Simms failed to pay the fees, the letter stated that he would “no longer be able to be referred for hire through the Hiring Hall.”

Simms did not make the required payments, and on May 1, 2015, according to Simms’s complaint, “Local 1752, caused CSA to not employ Simms.” In other words, Simms would no longer be referred for employment with CSA through the hiring hall. Ten days later, however, Simms “sign[ed] under protest” an agreement with Local 1752 to pay in installments the delinquent fees, allowing him to be referred through the hiring hall once again.

On October 8, 2015, Simms filed suit against Local 1752 asserting that it breached its duty of fair representation; its assessment of mandatory fees to Simms, a non-union member, for using the hiring hall was prohibited by Mississippi’s right to work law; and the payment agreement was void as against public policy for those reasons. On January 8, 2016, the district court granted Local 1752’s motion to dismiss. The court held that Simms’s allegations were insufficient to state a claim for breach of the duty of fair representation, and that Mississippi’s right to work law was preempted by federal law “with respect to the issue of requiring non-members to pay hiring hall' fees.”' The court further held that Simms’s claim that the payment agreement he had reached with the union was void as against public policy was not cognizable because the relevant Mississippi law was preempted by federal law. Simms timely appealed.

II. STANDARD OF REVIEW

.This court reviews “a district court’s order on a motion to dismiss for failure to state a claim under Rule 12(b)(6) de novo” and “accept[s] ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.’ ” New Orleans City v. Ambac Assurance Corp., 815 F.3d 196, 199-200 (5th Cir. 2016) (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)). “Dismissal is appropriate when the plaintiff has not alleged ‘enough facts to state a claim to relief that is plausible on its face’ and has failed to ‘raise a right to relief above the speculative level.’” True v. Robles, 571 F.3d 412, 417 (5th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

III. MISSISSIPPI’S RIGHT TO WORK LAW

We first turn to Simms’s primary argument that section 14(b) of the National Labor Relations Act (“NLRA”), 29 U.S.C. § 164(b), allows enforcement of Mississippi’s right to work law, Miss. Code Ann. § 71-1-47, thereby precluding the assessment of hiring hall fees to Simms. “[I]n passing the NLRA Congress largely displaced state regulation of industrial relations,” and thus, states “may not regulate activity that the NLRA protects, prohibits, or arguably protects or prohibits.” Wis. Dep’t of Indus., Labor & Human Relations v. Gould Inc., 475 U.S. 282, 286, 106 S.Ct. 1057, 89 L.Ed.2d 223 (1986) (citing San Diego Bldg. Trades Council, Millmen’s Union, Local 2020 v. Garmon, 359 U.S. 236, 79 S.Ct. 773, 3 L.Ed.2d 775 (1959)). Section 14(b), however, provides a limited exception:

Nothing in this subchapter shall be construed as authorizing the execution or application of agreements requiring membership in a labor organization as a condition of employment in any State or Territory in which such execution or application is prohibited by State or Territorial law.

29 U.S.C. § 164(b). According to Simms, Local 1752’s requirement that he pay fees for obtaining referrals through the hiring hall amounts to compulsory union “membership” under section 14(b), and therefore, Mississippi can prohibit those fees via its right to work law. Local 1752, however, contends that section 14(b) does not apply, and Mississippi’s right to work law is therefore preempted under these circumstances.

At the outset, it is important to describe clearly the scope of several allegations in the complaint. First, the only fees at issue are fees assessed to Simms, a non-union member, for obtaining referrals through Local 1752’s exclusive hiring hall. Second, Simms does not allege that these fees were unreasonable or excessive relative to the costs of operating the hiring hall. Instead, Simms’s argument is that, regardless of the amount, all hiring hall fees can be prohibited by a state right to work law because payment of those fees amounts to union “membership” under section 14(b).

This argument hinges on,Simms’s interpretation of how the hiring hall fees at issue here fit within two provisions of the NLRA, sections 8(a)(3) and 14(b), which were first added to the NLRA by the Taft-Hartley Act in 1947. It is instructive first to review the historical context of the relevant aspects of the Taft-Hartley Act. See Commc’ns Workers v. Beck, 487 U.S. 735, 747, 108 S.Ct. 2641, 101 L.Ed.2d 634 (1988) (“[T]he structure and purpose of § 8(a)(3) are best understood in light of the statute’s historical .origins.”). Prior to the Taft-Hartley Act, section 8(a)(3) of the NLRA permitted closed shop, union shop, and agency shop agreements. Oil, Chem. & Atomic Workers Int’l Union v. Mobil Oil Carp., 426 U.S. 407, 414, 96 S.Ct. 2140, 48 L.Ed.2d 736 (1976). Generally speaking, a closed shop is a type of union-security agreement that requires prospective employees to become union members before commencing employment. Id. at 409 n.l, 96 S.Ct. 2140. In contrast, a union shop, which requires employees to join the union after being hired, and an agency shop, which requires employees to make payments to the union after being hired but not to join the union, are less stringent types of union-security agreements. See id. “By 1947, [closed shops] had come under increasing, attack,” and Congress determined that they should be banned. Beck, 487 U.S. at 748, 108 S.Ct. 2641. That being said, Congress also recognized that prohibiting closed shops could create a free rider problem—i.e., employees choosing not to contribute financially to the union but still benefiting from the union’s actions. See id.

Against this historical backdrop, section 8(a)(3) of the Taft-Hartley Act attempted to accomplish the “twin purposes” of eliminating “the most serious abuses of compulsory unionism ... by abolishing the closed shop” but still allowing certain union-security agreements to counter the free rider problem. NLRB v. Gen. Motors Corp., 373 U.S. 734, 740-41, 83 S.Ct. 1453, 10 L.Ed.2d 670 (1963). Specifically, section. 8(a)(3) “makes it an unfair labor practice for an employer ‘by discrimination in regard to hire or tenure of employment ... to encourage or discourage membership in any labor organization.’ ” Beck, 487 U.S. at 744, 108 S.Ct. 2641 (quoting 29 U.S.C. § 158(a)(3)). While this would appear to bar any union-security agreement, section 8(a)(3) also contains a proviso that allows unions to require “membership” as a condition of employment thirty days after the beginning of employment so long as the following safeguards are met:

[Njo employer shall justify any discrimination against an employee for nonmem-bership in a labor organization (A) if he has. reasonable grounds for believing that such membership was not available to the employee on the same terns and conditions generally applicable to other members, or (B) if he has reasonable grounds for believing that membership was denied or terminated for reasons ■ other than the failure of the employee to tender the periodic dues and the initiation fees uniformly required as a condition of acquiring or retaining membership ....

29 U.S.C. § 158(a)(3); see also Beck, 487 U.S. at 744-45, 108 S.Ct. 2641. “Taken as a whole, § 8(a)(3) permits an employer and union to enter into an agreement requiring all employees to become union members as a condition of continued employment, but the ‘membership’ that may be so required has been ‘whittled down to its financial core.’ ” Beck, 487 U.S. at 744-45, 108 S.Ct. 2641 (footnote omitted) (quoting Gen. Motors, 373 U.S. at 742, 83 S.Ct. 1453).

“While § 8(a)(3) articulates a national policy that certain union-security agreements are valid as a matter of federal law, § 14(b) reflects Congress’ decision that any State or Territory that wishes to may exempt itself from that policy.” Oil, Chem. & Atomic Workers, 426 U.S. at 416-17, 96 S.Ct. 2140. As explained by the Supreme Court, section 14(b) “was designed to prevent other sections of the Act from completely extinguishing state power over certain union-security arrangements. And it was the proviso to §, 8(a)(3), expressly permitting agreements conditioning employment upon membership in a labor union, which Congress feared might have this result.” Retail Clerks. Inti Ass’n, Local 1625 v. Schermerhom, 373 U.S. 746, 751, 83 S.Ct. 1461, 10 L.Ed.2d 678 (1963) (footnote omitted); see also Laborers’ Int’l Union, Local No. 107 v. Kunco, Inc., 472 F.2d 456, 458 (8th Cir. 1973) (“This statute can best be described as an exception to the general rule that the federal government has preempted the field of labor relations regulation.”). However, “[s]inee § 8(a)(3) already prohibits the closed shop, the more restrictive policies that § 14(b) allows the States to enact relate not to the hiring process but rather to conditions that would come into effect only after an individual is hired.” Oil, Chem. & Atomic Workers, 426 U.S. at 417, 96 S.Ct. 2140.

With this statutory framework in mind, we turn to the primary issue in this case and conclude that section 14(b) does not allow Mississippi to prohibit unions from requiring non-union members to pay a hiring hall fee. Therefore, Mississippi’s light to work law, Miss. Code Ann. § 71-1-47, is preempted by federal law to the extent that it prohibits non-union members from being required to pay hiring hall fees. We further agree with the district court that this ruling does not invalidate Mississippi’s right to work law in its entirety, but rather only insofar as it could be interpreted as prohibiting unions from requiring non-union members to pay a hiring hall fee.

For nearly 70 years after the NLEA was amended by the Taft-Hartley Act, courts have consistently treated hiring halls as being distinct from union-security agreements generally. An exclusive hiring hall is not per se illegal under the NLRA, and it only becomes illegal if it operates in a discriminatory manner. See Local 357, Int’l Bhd. of Teamsters v. NLRB, 365 U.S. 667, 673-74, 81 S.Ct. 835, 6 L.Ed.2d 11 (1961). While the existence of an exclusive hiring hall may encourage union membership, section 8(a)(3) “does not outlaw all encouragement or discouragement of membership in labor organizations; only such as is accomplished by discrimination is prohibited.” Id. at 674-76, 81 S.Ct. 835 (quoting Radio Officers’ Union of Commercial Telegraphers Union v. NLRB, 347 U.S. 17, 42-43, 74 S.Ct. 323, 98 L.Ed. 455 (1954)).

Moreover, it is settled law that hiring halls can require non-union members to pay a reasonable fee related to the costs of operating the hiring hall. See, e.g., Pittsburgh Press Co. v. NLRB, 977 F.2d 652, 657 (D.C. Cir. 1992) (“Congress, the Supreme Court, and the NLRB thus agreed on the basic principles of a legitimate hiring hall for which nonunion workers could be charged a fee by the union.... ”); NLRB v. Hous. Maritime Ass’n, 337 F.2d 333, 336 (5th Cir. 1964) (“Reasonable and nondiscriminatory charges for the union’s referral services were legal.”). This stands in contrast to union-security agreements, which constitute illegal discrimination under the NLRA unless they satisfy section 8(a)(3)’s proviso. See Beck, 487 U.S. at 744, 108 S.Ct. 2641 (“[Section 8(a)(3) ] contains two provisos without which all union-security clauses would fall within this otherwise broad condemnation_”).

And this distinction makes sense. Hiring halls serve a unique purpose, one in which the union' can act-as an employment agency or referral system for the employer, benefiting all of the parties involved. See Pittsburgh Press, 977 F.2d at 657 (comparing the original hiring hall with its modern day attributes); Local 357, 365-U.S. at 673-74, 81 S.Ct. 835 (“Senator Taft made clear his views that hiring halls are useful, that they are' not illegal per se, that unions should be able to operate them so long as they are not used to create a closed shop-”). For example, as part of a hiring hall, “[a] union may ..: employ its facilities, its phone lines, its network for identifying and recruiting workers, its judgment and expertise in matching a worker’s skills with a particular job, or its members’ time and effort in building and maintaining a job referral system.” Pittsburgh Press, 977 F.2d at 661. This distinction is why, unlike a union-security agreement, no court that we are aware of, and Simms has pointed to none, has held that referral fees assessed to non-union members for use of a hiring hall can be prohibited under a state right to work law. Put another way, while a union-security agreement can amount to union “membership” under section 14(b), requiring a non-union member to pay a reasonable referral fee for the use of an exclusive hiring hall does not.

Indeed, more than fifty years ago this court held that section 14(b) does not apply to hiring halls. NLRB v. Hous. Chapter, Associated Gen. Contractors,. Inc., 349 F.2d 449, 453 (5th Cir. 1965) (“[T]he long and short of the matter is that § 14(b) contemplates only those forms of union security which are the practical equivalent of compulsory unionism.”); see also Kunco, 472 F.2d at 458-59; NLRB v. Tom Joyce Floors, Inc., 353 F.2d 768, 771 (9th Cir. 1965). Contrary to Simms’s position, assessing a fee to non-union members for use of a hiring hall does not distinguish the instant case from this precedent. It is settled law that, under the1 NLRA, exclusive hiring halls, can assess non-union members a reasonable, fee for the costs of operating the hiring hall. Such a fee does not constitute union “membership” under section 14(b), and this conclusion is reinforced by the fact that this fee relates to pre-hire rather- than post-hire conduct. See Oil, Chem., & Atomic Workers, 426 U.S. at 417, 96 S.Ct. 2140 (“It is evident, then, that § 14(b)’s primary concern is with state regulation of the posi-hiring employer-employee-union, relationship.”); see also Int’l Union of. the United Ass’n of Journeymen & Apprentices of the Plumbing and Pipe-fitting Indus. v. NLRB, 675 F.2d 1257, 1262 (D.C. Cir. 1982) (“Use of a hiring hall precedes hiring, and therefore does not constitute ‘membership’ under § 14(b).”). We reject Simms’s contention that the fact that the fees here were supposed to be collected at a later date via deductions from Simms’s paycheck (rather than prior to the referral) transforms this into post-hire conduct.

Simms points to Beck in support of his argument that the mandatory payment of any fee to a union constitutes “membership” for the purposes of sections 8(a)(3) and 14(b). By this reasoning, Simms concludes that the hiring hall fee assessed in the instant case is either illegal under the NLRA or allowed under section 8(a)(3)’s proviso and, therefore, can be banned under Mississippi’s right to work law. But Beck does not support this argument. Beck concerned a union-security agreement—not a hiring hall—and these are treated distinctly under the NLRA. As discussed above, unions may require nonunion members to pay a reasonable fee for the use of an exclusive hiring hall without violating the NLRA. Simply put, Beck does not dictate that the hiring hall fees assessed to Simms amount to union “membership” under section 14(b).

IV. THE DUTY OF FAIR REPRESENTATION

Simms also fails to allege sufficient facts to state a cognizable claim for breach of the duty of fair representation. Under the NLRA, unions have a duty of fair representation “to serve the interests of all members without hostility or discrimination toward any, to exercise its discretion with complete good faith and honesty, and to avoid arbitrary conduct.” Breininger v. Sheet Metal Workers Int’l Ass’n Local Union No. 6, 493 U.S. 67, 73, 110 S.Ct. 424, 107 L.Ed.2d 388 (1989) (quoting Vaca v. Sipes, 386 U.S. 171, 177, 87 S.Ct. 903, 17 L.Ed.2d 842 (1967)). This duty extends to exclusive hiring halls and is violated when a union’s actions are “arbitrary, discriminatory, or taken in bad faith.” Fowlkes v. Ironworkers Local 10, 790 F.3d 378, 388 (2d Cir. 2015) (citing Air Line Pilots Ass’n v. O’Neill, 499 U.S. 65, 67, 111 S.Ct. 1127, 113 L.Ed.2d 51 (1991)); see also Milright & Mach. Erectors, Local Union 720 v. NLRB, 798 F.2d 781, 784 (5th Cir. 1986) (“We have interpreted the duty of fair representation to mean that a union operating an exclusive hiring hall ‘may not apply arbitrary or invidious criteria in referring employees to jobs.’ ” (quoting Int’l Union of Operating Eng’rs Local 106 v. NLRB, 701 F.2d 504, 508 (5th Cir. 1983))).

Simms, however, does not allege any conduct by Local 1752 that was arbitrary, discriminatory, or done in bad faith. Simms’s only allegation on this point can be summarized as the following: he has to pay fees to Local 1752 for use of its hiring hall, and if he does not pay those fees, the hiring hall will stop referring him and he will not be able to obtain employment with CSA. This allegation, however, is insufficient to state a claim for breach of the duty of fair representation. As discussed above, an exclusive hiring hall can legally require non-union members to pay,a reasonable fee, see, e.g., Pittsburgh Press, 977 F.2d at 657. Simms does not allege that the amount of the fee was unreasonable, relying instead only on the fact that a fee was assessed at all. Nor does Simms make any other relevant allegations about the hiring hall’s criteria or procedures. Simms’s argument that any hiring hall fee assessed to non-union members breaches the duty of fair representation is contrary to settled law, and once again, his reliance on Beck is unavailing given that Beck did not concern a hiring hall.

Y. CONCLUSION

For the foregoing reasons, the judgment of the district court’is AFFIRMED.

      . While ’ Local 1752 argued in the district court that Mississippi’s right to work law did not apply to hiring hall fees regardless of federal preemption, Local 1752 does not make this argument on appeal. Section 71—1— 47 states, inter alia, thé following:
      (a) Any agreement or combination between any employer'and any labor union or labor organization whereby any person not a member of such union or organization shall be denied the right to work for an employer, or whereby such membership is made a condition of employment or continuation of employment by such employer, or whereby any such unión or organization acquires an employment monopoly in any enterprise, is hereby declared to be an illegal combination or conspiracy and against public policy.
      (b) No person shall be required by an em- ' ployer to become or remain a member of any labor union or labor organization as a condition of employment or continuation of employment by such employer.
      (d) No employer shall require any person, as a condition of employment or continuation of employment, to pay any dues, fees, or other charges of any ldnd to any labor union or labor organization.
      (e) Any person who may be denied employment or be deprived of continuation of his employment in violation of any paragraph of this section shall be entitled to recover from such employer and from any other person, firm, corporation, or association acting in concert with him, by appropriate action in the courts of this state, such actual damages as he may have sustained by reason of such denial or deprivation of employment.
      Miss. Code Ann. § 71-1-47.

      . Labor Management Relations (Taft-Hartley) Act, ch. 120, sec. 101, §§ 8(a)(3), 14(b), 61 Stat 136, 140-41, 151 (1947) (codified at 29 U.S.C. §§ 158(a)(3), 164(b)); •

      . Conversely, an unreasonable or excessive hiring hall fee assessed to non-union members can constitute an unfair labor practice. See, e.g., NLRB v. Local 138, Int’l Union-of Operating Eng’rs, 385 F.2d 874, 877-78 (2d Cir. 1967).

      . Taking Simms’s argument to its logical conclusion, if a hiring hall fee were required to satisfy section 8(a)(3)'s proviso to be lawful, then a hiring hall fee assessed at the time of referral would not be lawful under the NLRA, Part of the proviso mandates that union "membership” must not be required until at least 30 days after employment, which would be violated by a hiring hall fee that is assessed when the employee is first referred. In other words, Simms’s argument would in effect treat hiring halls that charge non-union members a reasonable fee the same as closed shops, which is not the case under the NLRA.

      . For similar reasons, Simms’s reliance on Sweeney v. Pence, 767 F.3d 654 (7th Cir. 2014), is misplaced.

      . Because Simms has only alleged that the mere fact that a fee was assessed to nonunion members was a breach of the duty of fair representation, we need not address whether exclusive hiring halls require a heightened duty of fair representation. See Bowerman v. Int’l Union, United Auto., Aerospace & Agric. Implement Workers of Am. Local No. 12, 646 F.3d 360, 368-69 (6th Cir. 2011) (discussing how the Ninth and D.C. ' Circuits have applied a heightened standard to hiring halls but that a previous panel on the Sixth Circuit had not). Simms would also fail to allege a cognizable claim under a heightened standard.

      . Simms does not otherwise advance an argument on appeal that the payment agreement he reached with Local 1752 was void as against public policy. Even if he did, we agree with the district court that this claim is not cognizable given that Simms cannot state a claim under Mississippi law based on the required fees at issue here.


author: GREGG COSTA, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee v. Patrick G. MIRE, Defendant-Appellee v. Harbor America Central, Incorporated, Garnishee-Appellant United States of America, Plaintiff-Appellee v. Patrick G. Mire, Defendant-Appellee v. Harbor America Central, Incorporated, Defendant-Appellant
    No. 15-50128
    United States Court of Appeals, Fifth Circuit.
    September 30, 2016

      Kristy Karen Callahan, Esq., Joseph H. Gay, Jr., Assistant U.S. Attorney, U.S. Attorney’s Office, Western District of Texas, San Antonio, TX, for Plaintiff-Appellee.
    Nancy Blair Barohn, San Antonio, TX, for Defendant-Appellee.
    Kevin D. Jewell, Chamberlain, Hrdlicka, White, Williams & Aughtry, Houston, TX, for Defendant-Appellant.
    Before WIENER, CLEMENT, and COSTA, Circuit Judges.
   GREGG COSTA, Circuit Judge:

Harbor America Central'appeals the district court’s denial of its motions to release money paid into the court registry and to terminate garnishment. Patrick Mire, a convicted fraudster, is subject to a $10 million restitution order. Harbor America, which had contracted with Mire and his fraudulently run businesses, is subject to a writ of garnishment for that debt, but it asserts that it no longer holds Mire’s property as it has terminated the contracts under which it owed him regular payments. Harbor America alleges it was entitled to terminate the contracts based on Mire’s fraud and did so by obtaining a judgment in a Texas state court declaring its right to terminate.

We hold that the state court ruling is not binding because the government was not allowed to participate in the proceeding. Considering the question of termination in the first instance, we conclude that Harbor America has lawfully terminated one of the contracts but may or may not have been entitled to terminate the other. We thus remand to the district court for further fact finding on the termination question and to determine any compensation Harbor America owes under any terminated contracts.

I.

Mire pleaded guilty to conspiracy to commit mail fraud and conspiracy to commit money laundering. United States v. Mire, 619 Fed.Appx. 330, 331 (5th Cir. 2015). The convictions resulted from Mire’s involvement in companies that contracted to administer payroll and insurance programs for employers. Mire’s companies withheld employment taxes from payroll checks issued to the clients’ employees but failed to deliver the withheld taxes to the IRS and kept them instead. Mire was sentenced to 36 months in prison and ordered to pay $10 million in restitution. Id, at 331.

After entry of final judgment, the government notified Harbor America that the government had “a federal tax type lien” on all of Mire’s property. See 18 U.S.C. § 3613. The government next applied to the district'court for a writ of garnishment directed to Harbor America as garnishee, asserting that Harbor America was indebted to Mire or “in possession of [substantial nonexempt] property” of his. See 28 U.S.C. § 3205; 18 U.S.C. § 3613. The court issued the writ.

Harbor America answered the writ and acknowledged that it owed “commission payments” to Mire based on two contracts. In the Independent Representative Agreement (IRA), CenterPoint Employee Management LLC, a company Mire owned and used in his frauds, agreed to represent Harbor America on a commission basis in selling and marketing staff leasing services.- Through an Asset Purchase Agreement (APA), Harbor America acquired the payroll service contracts held by Center-point Outsourcing, LLC, another company Mire owned and used to perpetrate his frauds. In exchange for these agreements, Harbor America agreed to make regular payments as a percentage of its earnings from the clients. The APA generated more income for Mire than the IRA. Taking the month of April 2014 as an example, Harbor America reported that it withheld $5,610.66 in bi-weekly payments due under the IRA and $37,683.85 in monthly payments due under the APA.

The IRA provided that it could “be terminated immediately and all compensation shall cease if [CenterPoint] engages in any clearly illegal business practices.” In the APA, Centerpoint represented that it conducted its activities lawfully.

In its answer, Harbor America advised that it had initiated a state court deelarato-ry judgment proceeding to terminate the IRA and the APA because of Mire’s criminal conviction. Harbor America did not join the government as a party in the state court action, but the - government intervened on the basis of its restitution hen. The government then removed the state proceeding to federal district court, but that court remanded. Following remand, the state court granted Harbor America’s motion to dismiss the government’s intervention.

In June 2014, the government moved in the ongoing garnishment proceeding for an order disposing of the garnished property held by Harbor America. See 28 U.S.C. § 3205(c)(7). Harbor America opposed the motion, contending that a determination of its rights and obligations with regard to Mire was properly at issue in the state court declaratory judgment -action. The district court ruled in favor of the government. It determined that Harbor America had retained $43,294.51 due Mire under the IRA and the APA as of the date of the writ and that all commissions were nonexempt property of Mire’s that the government was entitled to garnish. Consequently, Harbor America was ordered to pay the government all property in its possession belonging to Mire. The clerk was ordered to retain the monies collected pending disposition of Mire’s appeal of his conviction. The court also ordered that the garnishment continue until terminated. See 28 U.S.C. § 3205(c)(10).

The state court granted summary judgment in favor of Harbor America on its claim for a declaration that it had the right to terminate the IRA and the APA. Afterward, in November 2014, Harbor America notified Mire in writing of its termination of the IRA and the APA, “[pjursuant to the IRA, the APA, the Texas Declaratory Judgment Act, and the [state] court’s rulings.” '

In December 2014, Harbor America moved the federal court to release to it $312,838.37 that it had deposited in the court registry under protest as garnishee. The district’ court denied the motion and ordered Harbor America to comply with the writ of garnishment and the disposition order. Harbor America moved to quash the disposition order on the basis that a condition to quash had been met, namely that the IRA and the APA had been terminated. See 28 U.S.C. § 3205(c)(10)(B) (providing for expiration of a writ when the debtor’s property in the garnishee’s possession is exhausted). The district court did not rule on this motion but ordered Harbor America to show cause why it should not be held in contempt' and again directed it to comply with the writ of garnishment and the disposition order. Harbor America appealed.

II.

A.

We review garnishment orders and ancillary decisions for abuse of discretion. United States v. Elashi, 789 F.3d 547, 548 (5th Cir. 2015); United States v. Clayton, 613 F.3d 592, 595 (5th Cir. 2010). Supporting findings of fact are reviewed for clear error, and supporting conclusions of law are reviewed de novo. Af-Cap, Inc. v. Republic of Congo, 462 F.3d 417, 423 (5th Cir. 2006).

Federal law makes “a restitution order enforceable to the same extent as a tax lien.” United States v. Loftis, 607 F.3d 173, 179 n.7 (5th Cir. 2010) (citing 18 U.S.C. § 3613(c)). The government may-use the garnishment provisions of the Federal Debt Collection Procedures Act, 28 U.S.C. §§ 3001-3308, to collect a restitution obligation imposed by a judgment of conviction. United States v. Phillips, 303 F.3d 548, 550-51 (5th Cir. 2002). Under the Act, a court may garnish “property (including nonexempt disposable earnings) in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or control of a person other than the debtor, in order to satisfy the judgment against the debtor.” 28 U.S.C. § 3205(a). “Property” for these purposes includes the present and future right to receive payments under a contract. See 28 U.S.C. § 3002(12).

Although federal law thus creates a lien on property, it is state law that “defines the property interests to which the lien attaches.” Elashi, 789 F.3d at 548-49. In this context, federal law “creates no property rights but merely attaches consequences, federally defined, to rights created under state law.” United States v. Craft, 535 U.S. 274, 278, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002).

B.

Harbor America argues that it terminated both the IRA and the APA on April 22, 2014 (when it filed the state court action), that Texas contract law entitled it to terminate those agreements when it did, and that the state declaratory judgment conclusively decided this issue in its favor. It reasons that because state law undoubtedly defines the property interest that is subject to the government’s lien (in this case a right to receive payments under two contracts), Mire’s property evaporated on April 22, 2014, when the contracts were allegedly terminated.

We first consider the effect of the state court judgment. The government contends that it is not bound by the state court’s determination that Harbor America could terminate the IRA and APA because that court refused to allow it to intervene. It relies on the following provision of the Internal Revenue Code:

If the United States is not a party to a civil action or suit, the United States may intervene in such action or suit to assert any lien arising under this title [the Internal Revenue Code] on the property which is the subject of such action or suit .... In any case in which the application of the United States to intervene is denied, the adjudication in such civil action or suit shall have no effect upon such lien.

26 U.S.C. § 7424.

The order of restitution in this case arises under Title 18. On its face, section 7424 applies only to liens arising under Title 26, the Internal Revenue Code. An order of restitution, however, “is a lien in favor of the United States on all property and rights to property of the person fined as if the liability of the person fined were a liability for a tax assessed under the Internal Revenue Code —” 18 U.S.C. § 3613(c). No circuit has addressed the interaction of these two sections, but we read them together to require that the government be allowed to intervene in an action directed at property that is subject to an order of restitution. If the government is not allowed to intervene, the subsequent adjudication cannot prevent the government from contesting the status of the subject property in a collateral proceeding.

Our conclusion follows from the language of the text: section 3613 says that an order of restitution is to be treated as if it were a tax lien; section 7424 gives the government a right to intervene in any action directed at property against which it holds a tax lien; and section 7424 further provides that when that right is violated, the resulting adjudication has “no effect upon such lien.” The statute reflects that the government’s status as a lienholder makes it the party with an interest in contesting any dispute about the property subject to the lien. United States v. Nat’l Bank of Commerce, 472 U.S. 713, 725, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985).

Because the government was not permitted to intervene in the Texas action that produced the declaratory judgment upon which Harbor America relies, Harbor America cannot use it to forestall the government from litigating as an original matter whether Harbor America was entitled to terminate the contracts. Harbor America protests that this holding is at odds with the principle that state law defines property interests that are subject to federal liens. But 26 U.S.C. § 7424 does not displace state law, it merely provides that the government’s interest as a lienholder allows it a say in disputes deciding the extent of those interests under state law. We thus proceed to determine, in light of the governing state law, whether Harbor America could—and if it could, when it did—terminate the agreements it had with Mire’s companies.

C.

The IRA states that it “may be terminated immediately and all compensation shall cease if [Centerpoint] engages in any clearly illegal business practices.” It is undisputed that Centerpoint was engaged in criminal business practices. Under Texas contract law, termination provisions such as this are generally given effect without regard to questions of material breach. See Woodard v. Gen. Motors Corp., 298 F.2d 121, 126 (5th Cir. 1962); Capcor at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C, — S.W.3d -, -, 2014 WL .982858, at *10 (Tex. App.—Houston [1st Dist.] Mar. 13, 2014, no pet.) (holding that jury instruction on material breach was not necessary when contract contained termination provision); Home Reader Serv., Inc., v. Grappi, 446 S.W.2d 95, 99 (Tex. Civ. App.—Dallas 1969, writ refd n.r.e.) (“A contract, provision for termination by either party when fairly entered into, will be enforced if not contrary to equity and good conscience.” (internal quotation marks omitted)). It follows that Harbor America had the right to terminate the IRA because of Center-point’s criminal activities.

Harbor America asserts that it terminated the IRA on April 22, 2014, the date it filed its state court action. Its state court petition, however, did not attempt to terminate the IRA and APA but sought a declaration that the contracts permitted it to do so. It was only on November 24, 2014, that Harbor America sent a termination letter to Mire. The record does not indicate that Harbor America took any action to terminate the IRA, as opposed to seeking a declaration that it could terminate it, until it sent that letter. Harbor America thus did not terminate the IRA until November 24, 2014.

Because Harbor America can and did terminate the IRA, it no longer owed commission payments under ' that services agreement to Mire as of November 24, 2014. Successful termination of the IRA halted accumulation of Mire’s property interest in the commission payments and thus in the property available for garnishment. The district court erred in denying Harbor America’s motion to quash and motion to release funds without taking into account the effect of the termination letter on Mire’s interest in the IRA. On remand, it will be necessary for the court to calculate the sum of commission payments that accrued prior to • November 24, 2014, to ascertain the correct amount owed to the government.

D.

Both the question of termination and, in the event of termination, compensation are more difficult when it comes to the APA. Unlike the IRA, the APA does not authorize Harbor America to terminate the agreement for illegal business practices. The APA does, however, include a warranty that Mire’s company had “conducted its operations in accordance with all applicable law.”

In the absence of a clause authorizing Harbor America to terminate the APA for breach of the lawful-conduct warranty, its ability to terminate hinges on whether the breach was material. See Lennar Corp. v. Market Am. Ins. Co., 413 S.W.3d 750, 755 (Tex. 2013) (“Generally, one party’s breach does not excuse the other’s performance unless the breach is material.”). Texas courts follow the framework outlined in the Restatement to determine whether a breach is material. Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 199 (Tex. 2004) (per cu-riam) (citing Restatement (Seoond) of CONTRACTS § 241 (1981)). The analysis prescribed by the Restatement includes consideration of factors outside the text of the contract that bear on the real expectations, benefits, and injuries to the parties. For example, courts are to consider “the extent to, which the injured party will be deprived of ,the benefit which he reasonably expected.” Restatement, supra, § 241(a). Materiality is accordingly an issue of fact under Texas law. Briargrove Shopping Ctr. Joint Venture v. Vilar, Inc., 647 S.W.2d 329, 333 (Tex. App.—Houston [1st Dist.] 1982, no writ).

There is another important difference between the APA and IRA that affects the question of compensation in the event Harbor America was entitled to terminate the APA. As their titles disclose, the APA is a sales agreement and the IRA is a representation agreement for ongoing services. That makes the question of compensation straightforward for the IRA: as of the date of termination, Harbor America owes nothing else on the contract as it no longer receives any services under the contract. Under the-APA, however, Harbor America has already received everything- it was due: the valuable contracts Mire’s company had with employers to provide payroll services. But Mire has not. The APA gives him a right to ongoing payments—-fifty percent of Harbor America’s monthly earnings from the book of business it received. Given this feature of the APA, we requested supplemental briefing from the parties regarding the fate of these assets should Harbor America terminate the APA.

In the event of a material breach, Harbor America can of course undo the entire relationship created by the contract by no longer providing services for the clients it obtained. That is not, however, its current plan. Harbor America contends that a termination would allow it to keep the clients but no longer have to pay any compensation to Mire. Harbor America’s desire for a windfall from Mire’s criminality ignores the principles of restitution expressed in the Restatement that govern the issue:

[I]f a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party’s breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.

Restatement, supra, § 374(1). The Restatement accurately reflects the law in Texas on this point.-See, e.g., Lipscomb D. Fuqua, 103 Tex. 585, 131 S.W. 1061, 1064 (1910); Grant v. Sherwood Shores, Inc., 477 S.W.2d 667, 671-72 (Tex. Civ. App.— Austin 1972, no writ); De Leon v. Aldrete, 398 S.W.2d 160, 162-63 (Tex. Civ. App.— San Antonio 1965, writ ref d n.r.e.). Under a terminated APA in which Harbor America retains the clients that agreement gave it, Mire (in whose -shoes the government now stands) would be entitled to restitution. A court would calculate that amount by comparing the benefit conferred and the loss caused by the breaching party.

Given the absence of relevant evidence and the fact-intensive nature of the materiality and restitution inquiries, we are unable to determine whether Harbor America continues to hold Mire’s garnished property under the APA. Although the district court correctly reasoned that the state court decision obtained by Harbor America had no effect on the government’s lien, it thus should also have considered whether the APA was nonetheless lawfully terminated under Texas law when Harbor America sent the November 2014 letter purporting to terminate the agreement. Accordingly, remand is necessary so that the district court may receive and consider evidence bearing on materiality of breach and, if need be, the propriety of restitution.

⅝ $

In summary, we hold, that Harbor America rightly terminated the IRA on November 24, 2014. On remand, the district court must calculate the amount of commission payments accruing to Mire before this date; these payments were properly garnished and are now due to the government. Any payments that Harbor America would have made to Mire under the IRA subsequent to that date are no longer owed to him, subject to garnishment, or due to the government.

We reach no conclusion regarding whether Harbor America has rightly terminated the APA. The district court on remand should allow the parties to present evidence concerning whether violation of the warranty of lawful conduct was a material breach and Mire’s right to restitution of the client service agreements should the breach be deemed material. Any right Mire has to restitution is of course subject to garnishment along with the rest of his nonexempt property.

The judgment is VACATED and the case REMANDED for further proceedings consistent with this opinion.

      . The action was removed to the District Court for the Southern District of Texas, not the District Court for the Western District— the court where Mire was convicted, the garnishment proceedings were ongoing, and this appeal originates.