Dan Ryan Builders, Inc. v. Nelson

• Decision Date: 10 May 2012
• Docket Number: No. 11–1215.,11–1215.
• Citation: 682 F.3d 327
• Parties: DAN RYAN BUILDERS, INCORPORATED, Petitioner–Appellant, v. Norman C. NELSON; Angelia Nelson, Respondents–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

682 F.3d 327

DAN RYAN BUILDERS, INCORPORATED, Petitioner–Appellant,

v.Norman C. NELSON; Angelia Nelson, Respondents–Appellees.

No. 11–1215.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2012.

Decided: May 10, 2012.

OPINION TEXT STARTS HEREARGUED:Susan Renee Snowden, Martin & Seibert, LC, Martinsburg, West Virginia, for Appellant. Lawrence M. Schultz, Burke, Schultz, Harman & Jenkinson, Martinsburg, West Virginia, for Appellees. ON BRIEF:Paul B. Weiss, Martin & Seibert, LC, Martinsburg, West Virginia, for Appellant.

Before KEENAN and FLOYD, Circuit Judges, and NORMAN K. MOON, Senior United States District Judge for the Western District of Virginia, sitting by designation.

Order of Certification of a question of law to the Supreme Court of Appeals of West Virginia. Judge KEENAN prepared the order, in which Judge FLOYD and Senior Judge MOON joined.

ORDER

BARBARA MILANO KEENAN, Circuit Judge:

The United States Court of Appeals for the Fourth Circuit, exercising the privilege afforded to it by the State of West Virginia through the Uniform Certification of Questions of Law Act, West Virginia Code §§ 51–1A–1 through 51–1A–13, requests that the Supreme Court of Appeals of West Virginia exercise its discretion to answer the following question:

Does West Virginia law require that an arbitration provision, which appears as a single clause in a multi-clause contract, itself be supported by mutual consideration when the contract as a whole is supported by adequate consideration?

This Court acknowledges that the Supreme Court of Appeals may restate this question. SeeW. Va.Code §§ 51–1A–4, 51–1A–6(a)(3).

The material facts of the case before us are not in dispute. Dan Ryan Builders, Inc., (DRB) constructed a new home in Berkeley County, West Virginia, and entered into a contract with Norman Nelson for the sale and purchase of that home. The contract contained an arbitration provision (the arbitration provision) that states, in part,

[t]he parties ... acknowledge that they are and shall be bound by arbitration and are barred from initiating any proceeding or action whatsoever in connection with this Agreement.

In the same arbitration provision, however, DRB reserved the right to seek arbitration or to file an action for damages if Nelson “fail[ed] to settle on the Property within the time required under [the] Agreement.”

Despite his contractual promise to submit any claim to arbitration, Nelson, along with his wife Angelia Nelson (collectively, the Nelsons), filed an action against DRB in the Berkeley County Circuit Court seeking damages for certain alleged defects in the construction of the home. DRB later filed a petition in federal district court under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 through 17, seeking to compel the Nelsons to submit their claims to arbitration.

In response to DRB's petition, the Nelsons argued in the district court that the arbitration provision was unenforceable as a matter of law because it was not supported by mutual consideration, notwithstanding the fact that the contract as a whole was supported by adequate consideration. The Nelsons contended that the arbitration provision lacked mutual consideration because it permitted DRB to initiate litigation to resolve certain types of disputes, but restricted the Nelsons to the forum of arbitration for resolving any dispute with DRB.

The district court agreed with the Nelsons, dismissing DRB's motion to compel arbitration. Dan Ryan Builders, Inc. v. Nelson, 2010 WL 5418939 (N.D.W.Va. Dec. 23, 2010). The district court held that while DRB had satisfied preliminary requirements to compel arbitration under the FAA, the arbitration provision was unenforceable as a matter of law for want of mutual consideration. Id. DRB timely filed this appeal.

On appeal, DRB argues that the district court erred in denying DRB's motion to compel arbitration. According to DRB, West Virginia law requires that courts review contracts in their entirety, rather than focusing on a single provision, when deciding whether consideration is adequate. DRB contends that its position is supported by the Supreme Court's decision in Marmet Health Care Center, Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012), which was issued after the district court's decision in this case.

The Nelsons advance the contrary contention that West Virginia law requires mutual consideration within an arbitration provision, regardless whether the contract as a whole is supported by adequate consideration. In support of their argument, the Nelsons rely on Saylor v. Wilkes, 216 W.Va. 766, 613 S.E.2d 914, 923–24 (2005), a decision cited by the district court.

In our view, however, neither Marmet nor Saylor answers the question presented in the case before us. In Marmet, the Supreme Court reviewed the decision rendered by the West Virginia Supreme Court of Appeals (the state court) in Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011) (vacated). There, the state court held that, as a matter of public policy under West Virginia law, “an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning [ ] negligence.” Brown, 724 S.E.2d at 292. The state court alternatively held that two of the contested arbitration clauses at issue in the appeal were “unconscionable and unenforceable” against the plaintiffs in those cases. Id. at 292.

On appeal, the Supreme Court vacated the state court's public policy determination that pre-dispute arbitration agreements are unenforceable in cases of personal injury and wrongful death claims. The Court held that the state court decision violated the FAA as an unlawful categorical prohibition of arbitration. Marmet, 132 S.Ct. at 1203–04. The Supreme Court further held that the state court's alternative holding may have been influenced by the state court's public policy determination. Id. at 1204. The Supreme Court therefore remanded the case to the state court for a determination whether, absent the public policy considerations, the arbitration clauses were otherwise enforceable based on state common law principles. Id.

Although two of the arbitration clauses reviewed in Marmet contained provisions that were not mutually coextensive regarding the parties' obligation to arbitrate, similar to the arbitration provision at issue before us, the Supreme Court's holding was limited to the state court's consideration of public policy under West Virginia law. Neither the Supreme Court nor the state court addressed the separate issue whether the arbitration provisions failed for want of mutual consideration. Therefore, we conclude that Marmet does not resolve the issue before us.

We also conclude that the holding in Saylor is not applicable to the present case. There, a prospective employee had executed an arbitration agreement with an agency hired by the employer to resolve employment disputes. Saylor, 613 S.E.2d at 917. In that agreement with the agency, the prospective employee promised that, if hired, she would submit all employment-related disputes to arbitration. Id. The Supreme Court of Appeals of West Virginia held that the arbitration agreement was unenforceable because it contained a material misrepresentation that the employer was required to arbitrate any disputes with its employees, and because of the “gross imbalance of values exchanged.” Id. at 924. The court further held that the employer's promise to review the prospective employee's employment application provided insufficient consideration for the prospective employee's promise to arbitrate all employment-related claims. Id.

Unlike the arbitration provision at issue before us, the arbitration agreement in Saylor was a separate contract entered into between the employee and the dispute resolution agency, a third party to the employment contract. Significantly, the employer in Saylor was not a party to the arbitration agreement executed by the prospective employee. In contrast, the arbitration provision before us is part of a multi-clause contract between parties who both made certain promises regarding arbitration and other substantive rights. Therefore, the holding in Saylor that the arbitration agreement failed for want of consideration does not answer the question presented in this case.

The question before us likewise is unanswered by our unpublished decision in Howard v. King's Crossing, Inc., 264 Fed.Appx. 345 (4th Cir.2008), which is not binding precedent and on which the...