Schumacher Homes of Circleville, Inc. v. Spencer, No. 14–0441.

CourtSupreme Court of West Virginia
Writing for the CourtJustice KETCHUM
Citation235 W.Va. 335,774 S.E.2d 1
PartiesSCHUMACHER HOMES OF CIRCLEVILLE, INC., a foreign corporation, Defendant Below, Petitioner v. John SPENCER and Carolyn Spencer, Plaintiffs Below, Respondents.
Decision Date24 April 2015
Docket NumberNo. 14–0441.

235 W.Va. 335
774 S.E.2d 1

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 Appeals of West Virginia.

Submitted March 11, 2015.
Decided April 24, 2015.


Don C.A. Parker, Esq., Nicholas P. Mooney II, Esq., Sarah B. Smith, Esq., Spilman Thomas & Battle PLLC, Charleston, WV, for the Petitioner.

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

Opinion

Justice KETCHUM :

235 W.Va. 339

In recent years, the United States Supreme Court has doled out several complicated decisions construing the Federal Arbitration Act, 9 U.S.C. §§ 1 –16. Read together, these decisions create an eye-glazing conceptual framework for interpreting contracts with arbitration clauses that is politely described as “a tad oversubtle for sensible application.”1 The Supreme Court sees its arbitration decisions as a series of “clear instruction [s].” Marmet Health Care Ctr., Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 1203, 182 L.Ed.2d 42 (2012). But experience suggests that the rules derived from these decisions are difficult for lawyers and judges—and nearly impossible for people of ordinary knowledge—to comprehend.2 Still, no matter how confounding the Supreme Court's arbitration decisions may seem, we are constitutionally bound to apply them to arbitration clauses that involve interstate transactions.

We now attempt to peel back a few of the onion layers of the Supreme Court's arbitration decisions. We are asked to apply the Supreme Court's rulings to a construction contract which contains an arbitration clause. Nestled within the arbitration clause is what the Supreme Court terms a “delegation provision.” Under the Federal Arbitration Act, the validity and enforceability of the arbitration clause is normally determined by a circuit court applying state contract law. However, the contracting parties may incorporate a delegation provision into the arbitration clause saying that the validity and enforceability of the arbitration clause under state contract law will be decided by the arbitrator. We are specifically asked to enforce an alleged delegation provision in the parties' construction contract.

When a party invokes a delegation provision, United States Supreme Court cases interpreting the Federal Arbitration Act require that the language of the written delegation provision 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. The burden is on the party who opposes enforcement of the delegation provision to challenge the provision in the trial court. The party opposing enforcement must show why under precepts of state contract law

235 W.Va. 340
774 S.E.2d 6

that the delegation provision itself is invalid, revocable or unenforceable.

The Circuit Court of Mason County entered an order refusing to enforce the arbitration clause that contained a delegation provision after finding the arbitration clause was unconscionable. On appeal of that order, we find that the delegation provision does not clearly and unmistakably reflect an intention by the parties to assign to the arbitrator all questions about the enforceability of the arbitration clause. As set forth below, we affirm the circuit court's order.

I.

FACTUAL AND PROCEDURAL BACKGROUND

In June 2011, plaintiffs John and Carolyn Spencer 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 “that any claim, dispute or cause of action, of any nature ... shall be subject to final and binding arbitration by an arbitrator[.]”

Within the arbitration clause is a provision 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, usually nestled within the 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 provision in Schumacher's form contract that it alleges is a delegation provision states:

The arbitrator(s) shall determine all issues regarding the arbitrability of the dispute.

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 asserting that the court should find that the entire arbitration clause was unconscionable and unenforceable under state contract law.

Six months later, at a hearing in February 2014, Schumacher asserted for the first time that the arbitration clause contained a delegation provision. Orally (and not in writing), Schumacher argued to the circuit court that, because of the delegation provision, 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 provision in their oral argument to the circuit court. 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 substantively unconscionable. The circuit court's order did not address the delegation provision.

Schumacher now appeals the circuit court's order.

II.

STANDARD OF REVIEW

“An order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine.” Syllabus Point 1, Credit Acceptance Corp. v. Front, 231 W.Va. 518, 745 S.E.2d 556 (2013). Because the circuit court's ruling denied Schumacher's motion to dismiss, we review the circuit court's order de novo. See Syllabus Point 4, Ewing v. Bd. of Educ. of Cnty. of Summers, 202 W.Va. 228, 503 S.E.2d 541 (1998) (“When a party, as part of an appeal from a final judgment, assigns as error a circuit court's denial of a motion to dismiss,

235 W.Va. 341
774 S.E.2d 7

the circuit court's disposition of the motion to dismiss will be reviewed de novo. ”).

III.

ANALYSIS

The issue we focus upon concerns the effect of a “delegation provision” buried within an arbitration clause in a larger contract. Our discussion of the issue is controlled by the Federal Arbitration Act (“the FAA”) because the parties' contract reflects a transaction affecting interstate commerce.

Schumacher argues that the arbitration clause in its form contract contains a delegation provision. The provision says that “[t]he arbitrator(s) shall determine all issues regarding the arbitrability of the dispute.” Schumacher argues that the trial court erred in finding the arbitration clause unconscionable, and should have enforced the delegation provision and referred all of the parties' claims about “arbitrability” to arbitration. As we discuss below, we disagree.

The primary substantive provision of the FAA is Section 2,3 which we have interpreted as follows:

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) (“Brown I ”) (overruled on other grounds by Marmet Health Care Center, Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012) ).

The FAA recognizes that an agreement to arbitrate is a contract. The rights and liabilities of the parties are controlled by the state law of contracts. But if the parties have entered into a contract (which is valid under state law) to...

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4 practice notes
  • Parsons v. Halliburton Energy Servs., Inc., No. 14–1288.
    • United States
    • Supreme Court of West Virginia
    • April 11, 2016
    ...does little to convey that the United States Supreme Court's message was received[.]Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 353, 774 S.E.2d 1, 19 (2015) (Loughry, J., dissenting).12 Because I believe that our common law would have allowed this Court to align itself ......
  • Chesapeake Appalachia, L.L.C. v. Hickman, Nos. 14–0921
    • United States
    • Supreme Court of West Virginia
    • November 18, 2015
    ...claim that a ... provision binds the parties. Even lack of consideration is a defense." Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 346 n. 10, 774 S.E.2d 1, 12 n. 10 (2015). When a lawsuit is filed implicating an arbitration agreement, and a party to the agreement seeks......
  • Schumacher Homes of Circleville, Inc. v. Spencer, No. 14–0441
    • United States
    • Supreme Court of West Virginia
    • June 13, 2016
    ...Petitioner's Brief at 1.2 Response to Petition for Appeal at 8.3 Schumacher Homes of Circleville, Inc. v. Spencer , 235 W.Va. 335, 774 S.E.2d 1 (2015).4 235 W.Va. at 346, 774 S.E.2d at 12.5 235 W.Va. at 348, 774 S.E.2d at 14. See also , Alan Scott Rau, “The Arbitrability Question Itself,” 1......
  • Geological Assessment & Leasing v. O'Hara, Nos. 14–1210
    • United States
    • Supreme Court of West Virginia
    • November 18, 2015
    ...claim that a ... provision binds the parties. Even lack of consideration is a defense." Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 346 n. 10, 774 S.E.2d 1, 12 n. 10 (2015). Under the FAA, the circuit court may rest its decision on any ground that exists at law or in eq......
4 cases
  • Parsons v. Halliburton Energy Servs., Inc., No. 14–1288.
    • United States
    • Supreme Court of West Virginia
    • April 11, 2016
    ...does little to convey that the United States Supreme Court's message was received[.]Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 353, 774 S.E.2d 1, 19 (2015) (Loughry, J., dissenting).12 Because I believe that our common law would have allowed this Court to align itself ......
  • Chesapeake Appalachia, L.L.C. v. Hickman, Nos. 14–0921
    • United States
    • Supreme Court of West Virginia
    • November 18, 2015
    ...claim that a ... provision binds the parties. Even lack of consideration is a defense." Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 346 n. 10, 774 S.E.2d 1, 12 n. 10 (2015). When a lawsuit is filed implicating an arbitration agreement, and a party to the agreement seeks......
  • Schumacher Homes of Circleville, Inc. v. Spencer, No. 14–0441
    • United States
    • Supreme Court of West Virginia
    • June 13, 2016
    ...Petitioner's Brief at 1.2 Response to Petition for Appeal at 8.3 Schumacher Homes of Circleville, Inc. v. Spencer , 235 W.Va. 335, 774 S.E.2d 1 (2015).4 235 W.Va. at 346, 774 S.E.2d at 12.5 235 W.Va. at 348, 774 S.E.2d at 14. See also , Alan Scott Rau, “The Arbitrability Question Itself,” 1......
  • Geological Assessment & Leasing v. O'Hara, Nos. 14–1210
    • United States
    • Supreme Court of West Virginia
    • November 18, 2015
    ...claim that a ... provision binds the parties. Even lack of consideration is a defense." Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 346 n. 10, 774 S.E.2d 1, 12 n. 10 (2015). Under the FAA, the circuit court may rest its decision on any ground that exists at law or in eq......

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