State ex rel. Johnson Controls, Inc. v. Tucker

• Decision Date: 13 June 2012
• Docket Number: No. 11–1515.,11–1515.
• Parties: STATE of West Virginia, ex rel. JOHNSON CONTROLS, INC., York International Corporation, and Morgan Keller, Inc., Petitioners v. The Honorable Susan B. TUCKER, Judge of the Circuit Court of Monongalia County, and Glenmark Holding, LLC, Respondents.
• Court: West Virginia Supreme Court

229 W.Va. 486

729 S.E.2d 808

STATE of West Virginia, ex rel. JOHNSON CONTROLS, INC., York International Corporation, and Morgan Keller, Inc., Petitioners

v.The Honorable Susan B. TUCKER, Judge of the Circuit Court of Monongalia County, and Glenmark Holding, LLC, Respondents.

No. 11–1515.

Supreme Court of Appeals of

West Virginia.

Submitted Feb. 8, 2012.

Decided June 13, 2012.

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).

2. “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).

3. “The doctrine of unconscionability means that, because of an overall and gross imbalance, one-sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce the contract as written. The concept of unconscionability must be applied in a flexible manner, taking into consideration all of the facts and circumstances of a particular case.” Syllabus Point 12, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011).

4. “An analysis of whether a contract term is unconscionable necessarily involves an inquiry into the circumstances surrounding the execution of the contract and the fairness of the contract as a whole.” Syllabus Point 3, Troy Mining Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986).

5. “A determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the plaintiff, and ‘the existence of unfair terms in the contract.’ ” Syllabus Point 4, Art's Flower Shop, Inc. v. Chesapeake and Potomac Telephone Co. of West Virginia, Inc., 186 W.Va. 613, 413 S.E.2d 670 (1991).

6. “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).

7. “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).

8. “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).

9. The Federal Arbitration Act, 9 U.S.C. § 2, requires that if a lawsuit presents multiple claims, some subject to an arbitration agreement and some not, the former claims must be sent to arbitration—even if this will lead to piecemeal litigation. A trial court may not issue a blanket refusal to compel arbitration of some of a party's claims, merely because the party has other claims which are not subject to the arbitration agreement, or because other parties in the lawsuit are not subject to the arbitration agreement.

Thomas A. Heywood, Esq., Charles M. Love, III, Esq., Bowles Rice McDavid Graff & Love, Charleston, West VA, Charles C. Wise, III, Esq., Bowles Rice McDavid Graff & Love, Morgantown, West VA, Attorneys for York International and Johnson Controls, Inc.

Denise D. Pentino, Esq., Jacob A. Manning, Esq., Dinsmore & Shohl, LLP, Wheeling, West VA, Attorneys for Morgan Keller, Inc.

William E. Galeota, Esq., Rodney L. Bean, Esq., Brian D. Gallagher, Esq., Chelsea V. Brown, Esq., Steptoe & Johnson PLLC, Morgantown, WV, Attorneys for Glenmark Holding, LLC.

KETCHUM, Chief Justice:

In this construction lawsuit we are asked to examine a circuit court order refusing to compel a plaintiff corporation to arbitrate its claims against three defendant corporations. The circuit court entered two orders in which it found that the arbitration clauses in the defendants' contracts with the plaintiff were unconscionable. Further, the circuit court found that it would be inequitable to fracture the plaintiff's lawsuit into multiple “piecemeal” arbitrations and lawsuits against the defendants.

The defendants have petitioned this Court for a writ of prohibition to halt enforcement of the circuit court's orders, and to compel the plaintiff to arbitrate its claims. After consideration of the record, and the briefs and the arguments of the parties, we grant the requested writ of prohibition as moulded.

I. Facts and Procedural Background

Respondent (and plaintiff below) Glenmark Holding, LLC (“Glenmark”), owns an office building in Morgantown, West Virginia, called the “Suncrest Executive Office Plaza” or “United Center.” Glenmark alleges that it took delivery of the newly constructed building in August 2004 and immediately began experiencing serious problems with the heating, ventilation and air-conditioning (“HVAC”) system.

On June 13, 2011, Glenmark brought a lawsuit claiming that the HVAC system had been improperly designed, that it had been improperly constructed, that the HVAC equipment used in the system was defectively designed or manufactured, or that the system had been improperly maintained. Glenmark named seven defendants, including the general contractor that oversaw construction of the building (petitioner Morgan Keller, Inc.), and the two companies that manufactured and later maintained the HVAC equipment (petitioner York International Corporation and its parent corporation, petitioner Johnson Controls, Inc., hereafter called the “York petitioners”).¹ The seven defendants filed cross-claims against one another. The three petitioners—Morgan Keller and the two York petitioners—now assert, separate from the other four defendants, that Glenmark is contractually bound to arbitrate its claims.

On August 8, 2011, petitioner Morgan Keller, Inc., filed a motion to compel Glenmark to arbitrate its claims against Morgan Keller. Morgan Keller asserted that the duty to arbitrate arose from a contract Morgan Keller signed with Glenmark on August 1, 2003, to construct the office building. The contract was on a form drafted by the American Institute of Architects and was titled “AIA Document A101–1997, Standard Form of Agreement Between Owner and Contractor.” The contract incorporates by reference the “General Conditions of the Contract for Construction,” also known as “AIA Document A201–1997.” Document A201–1997 contains an express arbitration clause which states, “Any Claim arising out of or related to the Contract ... shall ... be subject to arbitration.” ²

Likewise, the two York petitioners filed a separate motion to compel Glenmark to separately arbitrate all of its claims against the York petitioners. The York petitioners manufactured some of the HVAC equipment that was in Glenmark's office building; among various theories in its complaint, Glenmark now asserts that the equipment was “defective, ineffective, inefficient, and not suitable for use on that building[.]” However, after construction of the building was completed, in December 2004, Glenmark entered into a “Preventative Maintenance Agreement” with the York petitioners for periodic inspections of and routine maintenance on the HVAC system. The maintenance agreement has an arbitration clause that states, in part:

All claims, disputes and controversies arising out of or relating to this contract, or the breach thereof, shall, in lieu of court action, be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association[.]

Glenmark asserts that the York petitioners breached the maintenance agreement and carelessly failed to keep the HVAC equipment in working order.

In response to the motions by Morgan Keller and the York petitioners, Glenmark asserted that the arbitration clauses were unconscionable and unenforceable, and asked the circuit court to deny the motions. Additionally, three defendants—who were not parties to any arbitration agreement and who had filed cross-claims against Morgan Keller and the York petitioners—filed briefs asserting that the motions should be denied so all of the claims and cross-claims of the parties could be litigated in one forum, in one proceeding.

The circuit court...