Arbitration issue coming into focus for W.Va. employers, attorney says

CHARLESTON – A series of recent West Virginia Supreme Court decisions confirms that if employers carefully draft arbitration agreements that comply with the court’s case law, they will likely be enforced, according to one local attorney.

“There was really a big question mark regarding the enforceability of arbitration agreements in West Virginia for a long time,” said Joseph Leonoro, a labor and employment lawyer in the Charleston office of Steptoe & Johnson. “But now, if you meet all the traditional contract principles, there is an agreement between parties, there is consideration, all of that, you have a chance of the agreement being enforced.”

Since November, the West Virginia Supreme Court has ruled against the plaintiff and in favor of enforcing arbitration in three cases – New v. Gamestop, Toney v. EQT and Ocwen Loan Serv. v. Webster.

In New v. GameStop, the state Supreme Court ruled that a plaintiff agreed to arbitration when she received an employment handbook and rules outlining an internal dispute resolution program and then signed an acknowledgement form.

The state Supreme Court then ruled in Ocwen Loan Serv. v. Webster that a Dodd-Frank Act provision that prevents arbitration in residential mortgage loans did not deem an arbitration agreement unenforceable since it was signed prior to the 2010 law.

In the third and most recent case, Toney v. EQT, the state Supreme Court upheld EQT Corp.’s alternative dispute resolution program, which offered employees participation in a short-term incentive plan if they signed arbitration agreements.

Leonoro pointed out that the New and Toney cases are important to labor and employment law since the West Virginia Supreme Court had not enforced an arbitration agreement in that context for several years. He said he also cites the Ocwen case in support of motions in employment cases, since its outcome helps anyone trying to enforce an arbitration agreement.

Leonoro contended that while the majority of his cases are still heard in state or federal court, he saw an uptick in employers with business outside of West Virginia using arbitration agreements in the past few years. Now, he said, as a result of these recent decisions, even more of his clients are considering the benefits of arbitration.

Most lawyers who represent employers argue that arbitration is cheaper and more efficient for their clients. For example, Leonoro said cases can take years to progress through West Virginia state courts, but with arbitration, matters are often resolved in just a few months.

“The process is streamlined,” he said. “Typically, the parties don’t engage, there are limits on discovery and things like that, which makes it cheaper since there aren’t as much attorneys’ fees generated and not as much work to be done by either side.”

Leonoro added that with arbitration, employers can often avoid “runaway” juries. They instead deal with an arbitrator who is usually an attorney experienced in their area of the law.

“There is a little more predictability and a little less risk,” he said. “With the jury, sometimes they will look to punish the employer or the company, and sometimes award massive punitive damages and other damages.”

Anthony Majestro, the managing partner at Powell & Majestro in Charleston, represented the plaintiffs in U-Haul v. Zakaib, another recent West Virginia Supreme Court case involving arbitration. In his experience, he has found neither time nor cost advantages of arbitration over jury trials.

“Sometimes cases go quick, and sometimes they are long, but there has been no real distinction,” he said.

Majestro contended that arbitration can also be more expensive than jury trials, especially with consumer and employee disputes.

“Unlike in the civil court system where we all pay the judge’s salary with our taxes, the arbitrations are typically done by attorneys, who are billing at their hourly rate, which is a whole lot more expensive than the minimal cost there is for a jury,” he said.

Majestro argued that the only advantages may be to large companies who regularly do arbitration and know the arbitrators who handle their cases.

When asked whether the recent decisions signal a pro-business stance from the West Virginia Supreme Court, Leonoro pointed out that their opinions have been both favorable and unfavorable for employers in recent years.

Instead, he said, the decisions show the state Supreme Court’s willingness to fall in line with the Federal Arbitration Act as well as with the U.S. Supreme Court’s decision in Marmet Health Care Center v. Brown.

In that 2012 case, the U.S. Supreme Court reversed the West Virginia Supreme Court’s ruling that pre-dispute arbitration agreements that apply to personal injury or wrongful death claims against nursing homes were unenforceable.

Liz Kramer, a partner with Stinson Leonard Street and the founder of the Arbitration Nation blog, argued that the recent decisions do signal a pro-business trend – specifically, a trend toward enforcing agreements.

She pointed out that U.S. Supreme Court Justice Antonin Scalia would say these consumers or employees agreed to arbitrate disputes, so the court has worked to help enforce those agreements.

However, Kramer added, his reasoning doesn’t take into account that consumers or employees don’t always have a choice. For example, she said, there are no major credit cards that don’t require arbitration.

“The only way this trend is going to stop or shift is if the majority in the U.S. Supreme Court changes, or if Congress gets worked up about it enough to actually revise the Federal Arbitration Act,” Kramer said. “But I don’t see this issue rising to the top of the national agenda.”

Instead, Kramer contended, the trend will continue, and businesses in West Virginia will feel more comfortable with using arbitration agreements in the future.

“They can trust that the state is going to abide by federal precedent in this area,” she said. “That could mean they write harsher arbitration agreements because they trust they will be enforced. That is a potential rational response.”