787 S.E.2d 650
W. Va.2016Background
- John and Carolyn Spencer signed a form construction contract with Schumacher Homes that included an arbitration clause and a short delegation provision: "The arbitrator(s) shall determine all issues regarding the arbitrability of the dispute."
- Plaintiffs sued in Mason County circuit court alleging construction defects; Schumacher moved to dismiss and compel arbitration. Schumacher did not raise the delegation clause in its motion or initial briefing but asserted it at the oral hearing.
- The circuit court denied the motion, finding the arbitration clause procedurally and substantively unconscionable; it did not address the delegation provision.
- Schumacher appealed; the plaintiffs’ briefs to this Court likewise never specifically challenged the delegation provision and continued to argue the arbitration clause was unconscionable as a whole.
- On remand from the U.S. Supreme Court (in light of DIRECTV), the West Virginia Supreme Court held that because the plaintiffs never specifically challenged the delegation language, the delegation provision must be treated as valid under the FAA and the question of the arbitration clause’s enforceability must be referred to an arbitrator. The circuit court’s denial was reversed and remanded with directions to send the arbitrability challenges to arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the delegation provision required arbitrator to decide arbitrability (i.e., who decides unconscionability) | Spencer argued the arbitration clause (including delegation language) was unconscionable in total and unenforceable; did not attack delegation provision separately | Schumacher argued the delegation clause delegated arbitrability to the arbitrator and thus the court lacked power to decide unconscionability | Court held delegation clause is enforceable because plaintiffs never specifically challenged it; therefore arbitrator must decide arbitrability |
| Whether a delegation provision must be clearly and unmistakably shown | Plaintiffs implied the clause was ambiguous and not a clear delegation | Defendant argued the clause ("arbitrability") sufficiently delegated the question | Court reiterated the "clear and unmistakable" standard but enforced the clause here on procedural waiver grounds (plaintiffs failed to contest it) |
| Whether federal FAA severability/delegation law preempts state treatment of delegation clauses | Plaintiffs relied on state contract defenses (unconscionability) to invalidate arbitration clause | Defendant relied on FAA and Rent-A-Center to require severability and enforcement of delegation provision | Court applied FAA/ Rent-A-Center severability: delegation clause is a separable mini-agreement; state contract defenses may invalidate delegation only if specifically asserted against it |
| Proper remedy when delegation clause is valid but arbitration clause is challenged as a whole | Plaintiffs sought judicial determination that arbitration clause is unconscionable and unenforceable | Defendant sought referral to arbitrator for any challenges to enforceability | Court reversed denial of motion to compel and remanded with instructions to refer enforceability issues to arbitrator (subject to any direct challenge to delegation clause) |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (delegation provisions are severable and binding unless specifically challenged)
- Brown v. Genesis Healthcare Corp., 228 W. Va. 646 (2011) (FAA requires treating arbitration agreements like other contracts; state contract defenses apply)
- DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015) (reinforces FAA preemption principles and treatment of arbitration agreements)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (courts apply ordinary state-law contract principles to determine whether parties agreed to arbitrate)
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (FAA reflects a liberal federal policy favoring arbitration and instructs courts to resolve doubts in favor of arbitration)