WASHINGTON – The U.S. Supreme Court has vacated and remanded a 2015 arbitration ruling back to the West Virginia Supreme Court.
Last year, the state Supreme Court ruled in the case of Schumacher Homes Inc. v. Spencer. In it, the Justices said the delegation provision in an arbitration clause does not clearly or unmistakably reflect an intention by the parties to assign to the arbitrator all questions about the enforceability of the clause.
Mason Circuit Court originally had entered an order refusing to enforce the arbitration clause that contained a delegation provision after finding the arbitration clause was unconscionable, according to the April 24 state Supreme Court opinion. Justice Menis Ketchum delivered the majority opinion affirming that order. Justices Brent Benjamin and Allen Loughry dissented, and Loughry authored a dissenting opinion.
The Feb. 29 summary disposition by the U.S. Supreme Court said, “The judgment is vacated, and the case is remanded to the Supreme Court of Appeals of West Virginia for further consideration in light of DirecTV Inc. v. Imburgia.”
In the DirecTV ruling, the U.S. Supreme Court held in December that the Federal Arbitration Act requires enforcement of the arbitration provision in commercial contracts.
The vacating of the ruling is unique in that it doesn’t just reverse the ruling. As one legal expert explained it, the vacating means the U.S. Supreme Court basically is telling the state Supreme Court that its ruling was so different from the DirecTV ruling that "we just need to throw it out and refer you to this recent opinion as an example of what you should have done.”
In June 2011, John Spencer and Carolyn Spencer signed a form contract with Schumacher Homes of Circleville Inc. for the construction of a house in Milton and the contract contained an arbitration clause by which the parties agreed that any claim, dispute or cause of action of any nature would be subject to final and binding arbitration by an arbitrator.
In July 2013, the Spencers brought the suit against Schumacher in Mason Circuit Court, claiming there were defects with the newly built home. In August 2013, Schumacher filed a motion asking the court to dismiss the suit and to compel the Spencers to participate in arbitration.
In February 2014, Schumacher asserted that the arbitration clause contained a delegation provision and argued to the circuit court that, because of the delegation provision, the court had no power to weigh the unconscionability of the arbitration clause.
The circuit court denied Schumacher's motion to dismiss and compel arbitration on March 6, 2014, and found that, as a whole, the arbitration clause was procedurally and substantively unconscionable. Schumacher then appealed the circuit court's order to the state Supreme Court.
The state Supreme Court said it found that the circuit court did not err in its failure to enforce Schumacher’s so-called delegation provision.
"Even assuming it was properly raised to the circuit court, the delegation provision does not reflect a clear and unmistakable intent by the parties to delegate state contract law questions about the validity, revocability or enforceability of the arbitration clause to an arbitrator," the majority opinion states. "Therefore, the circuit court was correct in deciding that the arbitration provision was unenforceable under West Virginia contract law."
In his dissenting opinion, Loughry stated that the majority, once again, "reveals its biases and blatant 'judicial hostility' toward arbitration by invalidating a plain and unmistakable agreement" between the parties involved to arbitrate issues regarding where a claim is subject to arbitration in the first place.
"Feigning confusion about the term 'arbitrability,' the majority concludes that the circuit court can decide whether the claims of the respondent homeowners, the Spencers, are subject to arbitration and then leaves untouched the circuit court's wildly unsupported conclusion that they are not," his dissenting opinion stated.
In that dissent, Loughry even said the state Supreme Court has been chastised once before by the United States Supreme Court for its failure to uphold valid arbitration agreements and ensure that such agreements are not "singled out" for hostile treatment or disfavor.
"The majority’s opinion does little to convey that the United States Supreme Court’s message was received; in fact, such tortured 'analysis' certainly suggests that a majority of this court took little heed of it," he stated.
Schumacher is being represented by Don C.A. Parker, Nicholas P. Mooney II and Sarah B. Smith of Spilman Thomas & Battle PLLC.
The Spencers are represented by Randall L. Trautwein and Michael L. Powell of Lamp, Bartram, Levy, Trautwein & Perry PLLC.
U.S. Supreme Court case number 15-316 (original West Virginia Supreme Court of Appeals case number 14-0441)