Grayiel v. Appalachian Energy Partners 2001–D, LLP

Decision Date15 November 2012
Docket NumberNo. 11–0371.,11–0371.
PartiesGeorge A. GRAYIEL, Jr., Plaintiff Below, Petitioner v. APPALACHIAN ENERGY PARTNERS 2001–D, LLP, Appalachian Energy Partners 2001–S, LLP, Appalachian Energy Partners 2001 II, LLP, Appalachian Energy Partners 2003 S–II, LLP, Burning Springs Energy Partners 1999, LLP, Burning Springs Energy Partners 2000, LLP, Burning Springs Energy Partners 2001–S, LLP, Cherokee Energy Company, Haynes # 2 Energy Partners 2001, LLP, Martin Twist Energy Co., LLC, Martin R. Twist, Drew Thomas, Tammy Curry Twist and Todd Pilcher Defendants Below, Respondents.
CourtWest Virginia Supreme Court

OPINION TEXT STARTS HERE

Syllabus by the Court

1. This Court will preclude enforcement of a circuit court's order compelling arbitration only after a de novo review of the circuit court's legal determinations leads to the inescapable conclusion that the circuit court clearly erred, as a matter of law, in directing that a matter be arbitrated or that the circuit court's order constitutes a clear-cut, legal error plainly in contravention of a clear statutory, constitutional, or common law mandate.” Syllabus Point 4, McGraw v. American Tobacco Company, 224 W.Va. 211, 681 S.E.2d 96 (2009).

2. “A circuit court's entry of summary judgment is reviewed de novo. Syllabus Point 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).

3.“ ‘ “A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.” Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).’ Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W.Va. 706, 421 S.E.2d 247 (1992).” Syllabus Point 1, Williams v. Precision Coil, Inc., 194 W.Va. 52, 459 S.E.2d 329 (1995).

4. “Although our standard of review for summary judgment remains de novo, a circuit court's order granting summary judgment must set out factual findings sufficient to permit meaningful appellate review. Findings of fact, by necessity, include those facts which the circuit court finds relevant, determinative of the issues and undisputed.” Syllabus Point 3, Fayette County National Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997).

5. “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 v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (2010).

6. “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).

7. “Unconscionability is an equitable principle, and the determination of whether a contract or a provision therein is unconscionable should be made by the court.” Syllabus Point 1, Troy Mining Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986).

8. “If a court, as a matter of law, finds a contract or any clause of a contract to be unconscionable, the court may refuse to enforce the contract, enforce the remainder of the contract without the unconscionable clause, or limit the application of any unconscionable clause to avoid any unconscionable result.” Syllabus Point 16, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

9. “A contract term is unenforceable if it is both procedurally and substantively unconscionable. However, both need not be present to the same degree. Courts should apply a ‘sliding scale’ in making this determination: the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the clause is unenforceable, and vice versa.” Syllabus Point 20, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

10. “Procedural unconscionability is concerned with inequities, improprieties, or unfairness in the bargaining process and formation of the contract. Procedural unconscionability involves a variety of inadequacies that results in the lack of a real and voluntary meeting of the minds of the parties, considering all the circumstances surrounding the transaction. These inadequacies include, but are not limited to, the age, literacy, or lack of sophistication of a party; hidden or unduly complex contract terms; the adhesive nature of the contract; and the manner and setting in which the contract was formed, including whether each party had a reasonable opportunity to understand the terms of the contract.” Syllabus Point 17, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

11. “A contract of adhesion is one drafted and imposed by a party of superior strength that leaves the subscribing party little or no opportunity to alter the substantive terms, and only the opportunity to adhere to the contract or reject it. A contract of adhesion should receive greater scrutiny than a contract with bargained-for terms to determine if it imposes terms that are oppressive, unconscionable or beyond the reasonable expectations of an ordinary person.” Syllabus Point 18, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

12. “Substantive unconscionability involves unfairness in the contract itself and whether a contract term is one-sided and will have an overly harsh effect on the disadvantaged party. The factors to be weighed in assessing substantive unconscionability vary with the content of the agreement. Generally, courts should consider the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and public policy concerns.” Syllabus Point 19, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

13. “Provisions in a contract of adhesion that if applied would impose unreasonably burdensome costs upon or would have a substantial deterrent effect upon a person seeking to enforce and vindicate rights and protections or to obtain statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public, are unconscionable; unless the court determines that exceptional circumstances exist that make the provisions conscionable. In any challenge to such a provision, the responsibility of showing the costs likely to be imposed by the application of such a provision is upon the party challenging the provision; the issue of whether the costs would impose an unconscionably impermissible burden or deterrent is for the court.” Syllabus Point 4, State ex rel. Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265 (2002).

Jeffrey K. Phillips, Esq., Robert L. Bailey, Esq., Steptoe & Johnson, PLLC, Lexington, KY, for the Petitioner.

Mark Goldner, Esq., Maria W. Hughes, Esq., Hughes & Goldner, PLLC, and Scott H. Kaminski, Balgo and Kaminski, L.C., Charleston, WV, for the Respondents.

Lisa A. Hopkins, Esq., General Counsel, Shane P. McCullough, Esq., Associate Counsel, West Virginia State Auditor Office and Commissioner of Securities, Charleston, WV, for Amicus Curiae.

PER CURIAM:

The instant case is before the Court upon the appeal of George Grayiel, Jr., Petitioner, from a February 1, 2011, order of the Circuit Court of Putnam County, West Virginia, granting the Respondents' 1 Motion for Summary Judgment dismissing his lawsuit ruling that arbitration clauses in Petitioner's investment contracts are not unconscionable and are enforceable.2 Petitioner alleges that the circuit court erred in: 1) requiring him to prove that the arbitration clauses in the parties' agreements are independently enforceable under the Federal Arbitration Act (“FAA”), rather than applying West Virginia law and finding those agreements unenforceable en toto; 2) failing to find the agreements' arbitration clauses independently unenforceable, either because they are unconscionable or because they were fraudulently procured; 3) refusing to find Respondent Martin Twist's deposition testimony an unresponsive and evasive effort to deprive Petitioner of any opportunity to conduct meaningful discovery; and 4) failing to enforce Respondent Twist's offer to repay Petitioner. Based upon the record before us, the arguments of the parties, and the applicable precedent, we find that the circuit court's order lacks the findings of fact and conclusions of law necessary for this Court to conduct a meaningful appellate review. Accordingly, we reverse the decision of the circuit court and remand this matter for further proceedings consistent with this opinion.

I.FACTUAL AND PROCEDURAL BACKGROUND

In January 2000, Martin Twist and Drew Thomas solicited Mr. Grayiel to invest in certain companies owned by Twist for the purpose of drilling for natural gas in and around Kanawha County, West Virginia. Petitioner entered into the first of twenty subscription and/or partnership agreements 3 with the Respondents in which the...

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