Schumacher Homes of Circleville, Inc. v. Spencer, 061316 WVSC, 14-0441

Docket Nº:14-0441
Opinion Judge:KETCHUM CHIEF JUSTICE
Party Name:SCHUMACHER HOMES OF CIRCLEVILLE, INC., a foreign corporation, Defendant Below, Petitioner v. JOHN SPENCER and CAROLYN SPENCER, Plaintiffs Below, Respondents
Attorney:Don C.A. Parker, Esq. Nicholas P. Mooney II, Esq. Spilman Thomas & Battle PLLC Charleston, West Virginia Attorneys for the Petitioner Mychal S. Schulz, Esq. Babst, Calland, Clements & Zomnir, P.C. Charleston, West Virginia Attorney for Amicus Curiae, Defense Trial Counsel of West Virginia Randall...
Case Date:June 13, 2016
Court:Supreme Court of Appeals of West Virginia
 
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SCHUMACHER HOMES OF CIRCLEVILLE, INC., a foreign corporation, Defendant Below, Petitioner

v.

JOHN SPENCER and CAROLYN SPENCER, Plaintiffs Below, Respondents

No. 14-0441

Supreme Court of West Virginia

June 13, 2016

Submitted: May 17, 2016

Appeal from the Circuit Court of Mason County The Honorable David W. Nibert, Judge Civil Action No. 13-C-116

Don C.A. Parker, Esq. Nicholas P. Mooney II, Esq. Spilman Thomas & Battle PLLC Charleston, West Virginia Attorneys for the Petitioner

Mychal S. Schulz, Esq. Babst, Calland, Clements & Zomnir, P.C. Charleston, West Virginia Attorney for Amicus Curiae, Defense Trial Counsel of West Virginia

Randall L. Trautwein, Esq. Michael L. Powell, Esq. Lamp, Bartram, Levy, Trautwein & Perry P.L.L.C. Huntington, West Virginia Attorneys for the Respondents

Mark A. Robinson, Esq. Justin D. Jack, Esq. Flaherty Sensabaugh Bonasso, PLLC Charleston, West Virginia Attorneys for Amicus Curiae, West Virginia Health Care Association, Inc.

SYLLABUS BY THE COURT

1. "Under the Federal Arbitration Act, 9 U.S.C. § 2, a written provision to settle by arbitration a controversy arising out of a contract that evidences a transaction affecting interstate commerce is valid, irrevocable, and enforceable, unless the provision is found to be invalid, revocable or unenforceable upon a ground that exists at law or in equity for the revocation of any contract." Syllabus Point 6, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011), reversed on other grounds by MarmetHealth Care Ctr, Inc. v. Brown, 132 S.Ct. 1201 (2012).

2. "Under the Federal Arbitration Act, 9 U.S.C. § 2, and the doctrine of severability, only if a party to a contract explicitly challenges the enforceability of an arbitration clause within the contract, as opposed to generally challenging the contract as a whole, is a trial court permitted to consider the challenge to the arbitration clause. However, the trial court may rely on general principles of state contract law in determining the enforceability of the arbitration clause. If necessary, the trial court may consider the context of the arbitration clause within the four corners of the contract, or consider any extrinsic evidence detailing the formation and use of the contract." Syllabus Point 4, State ex rel. Richmond American Homes of West Virginia, Inc. v. Sanders, 228 W.Va. 125, 717 S.E.2d 909 (2011).

3. "When a trial court is required to rule upon a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-307 (2006), the authority of the trial court is limited to determining the threshold issues of (1) whether a valid arbitration agreement exists between the parties; and (2) whether the claims averred by the plaintiff fall within the substantive scope of that arbitration agreement." Syllabus Point 2, State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (2010).

4. A "delegation provision" is a clause, within an agreement to arbitrate, which clearly and unmistakably provides that the parties to the agreement give to the arbitrator the power to decide the validity, revocability or enforceability of the arbitration agreement under general state contract law.

5. Under the Federal Arbitration Act, 9 U.S.C. § 2, and the doctrine of severability, where a delegation provision in a written arbitration agreement gives to an arbitrator the authority to determine whether the arbitration agreement is valid, irrevocable or enforceable under general principles of state contract law, a trial court is precluded from deciding a party's challenge to the arbitration agreement. When an arbitration agreement contains a delegation provision, the trial court must first consider a challenge, under general principles of state law applicable to all contracts, that is directed at the validity, revocability or enforceability of the delegation provision itself.

6. "Nothing in the Federal Arbitration Act, 9 U.S.C. § 2, overrides normal rules of contract interpretation. Generally applicable contract defenses-such as laches, estoppel, waiver, fraud, duress, or unconscionability-may be applied to invalidate an arbitration agreement." Syllabus Point 9, Brown v. Genesis Healthcare

Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011), reversed on other grounds by Marmet Health Care Or., Inc. v. Brown, 132 S.Ct. 1201 (2012).

ii

7. Under the Federal Arbitration Act, 9 U.S.C. § 2, there are two prerequisites for a delegation provision to be effective. First, the language of the delegation provision must reflect a clear and unmistakable intent by the parties to delegate state contract law questions about the validity, revocability, or enforceability of the arbitration agreement to an arbitrator. Second, the delegation provision must itself be valid, irrevocable and enforceable under general principles of state contract law.

KETCHUM CHIEF JUSTICE

This case is again before the Court upon a remand from the United States Supreme Court. The case began as an appeal of an order from the Circuit Court of Mason County, and involves an arbitration agreement between a home builder and a home buyer. The circuit court refused to enforce the arbitration agreement after finding it was unconscionable. In a prior opinion, we affirmed the circuit court's order.

As set forth below, we now reverse the circuit court's order. Before the circuit court and this Court, the builder argued that language in the arbitration agreement delegated questions about unconscionability to the arbitrator for resolution. The home buyer never specifically challenged the delegation language, before the circuit court or this Court. We find that the home buyer has therefore waived any right to challenge the delegation language. We remand the case to the circuit court, and direct that the parties' dispute regarding the validity, revocability, or enforceability of the arbitration agreement be referred to arbitration.

I.

FACTUAL AND PROCEDURAL BACKGROUND

In June 2011, John and Carolyn Spencer ("the plaintiffs") signed a form contract with defendant Schumacher Homes of Circleville, Inc. ("Schumacher"), for the construction of a house in Milton, West Virginia. The contract contains an arbitration clause by which the parties agreed, in relevant part, "that any claim, dispute or cause of action, of any nature . . . shall be subject to final and binding arbitration by an arbitrator[.]"

Within another part of the arbitration clause is language that Schumacher contends is a "delegation provision" saying that the parties agreed to delegate, from the courts to an arbitrator, any question about the enforceability of the arbitration clause. A delegation provision is a written agreement, nestled within an arbitration clause, to vest the arbitrator with sole authority to resolve any dispute over the validity, revocability or enforceability of the arbitration clause under state contract law. The language in Schumacher's form contract comprising the delegation provision states: The arbitrator(s) shall determine all issues regarding the arbitrability of the dispute.

Nowhere in the contract is the term "arbitrability" defined for the parties.

In July 2013, the plaintiffs brought suit against Schumacher in the circuit court claiming that there were defects in the newly-built house. In August 2013, Schumacher filed a motion asking the circuit court to dismiss the plaintiffs' suit and to compel the plaintiffs to participate in arbitration. Neither Schumacher's motion nor its legal memorandum supporting the motion made any mention of the delegation provision. The plaintiffs responded to the motion by writing that the court should find that the entire arbitration clause was unconscionable and unenforceable under state contract law.

At a hearing in February 2014, Schumacher asserted for the first time that the arbitration clause contained a delegation provision. Schumacher argued to the circuit court that, because of the delegation language, the court had no power to weigh the unconscionability of the arbitration clause. Schumacher stated that upon invocation of a delegation provision, "that's really the end of the inquiry" and "[i]t's for the arbitrator to decide whether [the arbitration clause is] unconscionable." The plaintiffs, apparently caught off guard, did not mention the delegation language in their oral argument to the circuit court, nor did they seek additional time to respond to Schumacher's argument. Instead, the plaintiffs' argument centered solely upon the unconscionable aspects of the arbitration clause.

In an order dated March 6, 2014, the circuit court denied Schumacher's motion to dismiss and compel arbitration. The circuit court found that, as a whole, the arbitration clause was procedurally and...

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