Court Opinion

ID: 2655956
Source: CourtListenerOpinion
Date Created: 2014-03-07 20:32:42.146082+00
Date Added: 2024-06-11T12:59:41.041119
License: Public Domain

No. 13-0379 – Wayne Kirby and Joyce Kirby v. Lion Enterprises, Inc., and T/A Bastian
              Homes
                                                                                FILED
                                                                             March 7, 2014
                                                                             released at 3:00 p.m.
                                                                           RORY L. PERRY II, CLERK
                                                                         SUPREME COURT OF APPEALS
                                                                              OF WEST VIRGINIA
Justice Ketchum, concurring:

              I agree with the majority that this case should be remanded to the trial court

to determine whether the arbitration provision is unenforceable because it is

unconscionable under West Virginia’s general contract law.

              Because this contract involves parties from two different states it affects

interstate commerce.      Therefore, the interpretation of the arbitration provision is

governed by the Federal Arbitration Act (“FAA”)1 and not by the common law principles

of arbitration discussed in Harley Miller I and II.2

              The FAA raises the doctrine of severability which holds that only if a party

explicitly challenges the enforceability of the arbitration provision is a court permitted to

consider challenges to the arbitration clause. However, the trial court is still permitted,

under state contract law, to weigh the unconscionability of the arbitration provision in

              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 ex rel. Brown v.
Genesis Healthcare Corp., 228 W. Va. 646, 656, 724 S.E.2d 250, 260 (2011) cert.
granted, judgment vacated sub nom. Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct.
1201, 182 L. Ed. 2d 42 (U.S. 2012).
              2
               See Bd. of Ed. of Berkeley Cnty. v. W. Harley Miller, Inc., 159 W.Va.
120, 221 S.E.2d 882 (1975) and Bd. of Ed. of Berkeley Cnty. v. W. Harley Miller, Inc.,
160 W.Va. 473, 474, 236 S.E.2d 439, 441 (1977).

                                              1
light of other provisions in the contract that affect the operation of the arbitration

provision. As this Court has said,

                     Under the Federal Arbitration Act, 9 U.S.C. § 2, and
             the doctrine of severability, only if a party to a contract
             explicitly challenges the enforceability of an arbitration
             clause within the contract, as opposed to generally
             challenging the contract as a whole, is a trial court permitted
             to consider the challenge to the arbitration clause. However,
             the trial court may rely on general principles of state contract
             law in determining the enforceability of the arbitration clause.
             If necessary, the trial court may consider the context of the
             arbitration clause within the four corners of the contract, or
             consider any extrinsic evidence detailing the formation and
             use of the contract.3

Put another way, “the law of this state – and virtually every other state – is that ‘[a]n

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.”4

             In my review of the arbitration provision and the terms of the contract

relating to the provision, I find several issues within the contract that may render

enforcement of the arbitration provision unconscionable. These problems should be

considered by the circuit court during the unconscionability analysis on remand. For

instance:

             3
               Syllabus Point 4, State ex rel. Richmond Am. Homes of W. Virginia, Inc.
v. Sanders, 228 W.Va. 125, 717 S.E.2d 909 (2011).
             4
                 Id., 228 W.Va. at 134, 717 S.E.2d at 918.

                                             2
                          1. Paragraph 12 – Confessing Judgment

               The contract requires the petitioners (the owners of the new house) to

arbitrate all of their disputes arising from the contract. Conversely (and perversely),

Paragraph 12 allows the respondent (contractor) to bring a lawsuit against the owners for

any breach of any provision of the contract.          Worse, Paragraph 12 “irrevocably”

authorizes and empowers the contractor to hire an attorney “to appear for and confess

judgement [sic]” against the owners in any court of record in “Pennsylvania or

elsewhere,” without providing any notice to the owners. Paragraph 12 also allows the

contractor to recover attorney fees, litigation costs, and 15% interest, all remedies that are

denied to the owners.

              This contract provision lacks any modicum of bilaterality or mutuality of

obligation. A contract that lacks mutual reciprocal obligations (for instance, “a contract

which requires the weaker party to arbitrate any claims he or she may have, but permits

the stronger party to seek redress through the courts”) may be so one-sided and

unreasonably unfair to one part that it is unconscionable.5

              5
                 Dan Ryan Builders, Inc. v. Nelson, 230 W.Va. 281, 290, 737 S.E.2d 550,
559 (2012) (“Such ‘unilateral’ arbitration clauses lend themselves extremely well to the
application of the doctrine of unconscionability because the right the clause bestows upon
its beneficiary is so wholly one-sided and unfair that the courts should feel no reluctance
in finding it unacceptable” (citations omitted)).

                                              3
                                 2. Paragraph 19 – Venue

              The house in dispute was built on a plot of land owned by the petitioners in

Fairmont, West Virginia. The contract originated at the contractor’s office located in

Uniontown, Pennsylvania.       Paragraph 19 of the contract (which is the arbitration

provision) requires that any arbitration proceeding be conducted in the office in which the

contract originated – that is, Uniontown, Pennsylvania (some 45 or 50 miles away from

the petitioner’s residence) unless the contractor agrees otherwise.

              The distance from the site of the petitioner’s home to the contractor’s office

is a factor the trial court can weigh in determining if the arbitration provision is

unconscionable. If a contract provision “would impose unreasonably burdensome costs

upon or would have a substantial deterrent effect upon a person seeking to enforce and

vindicate rights and protections or to obtain statutory or common-law relief and remedies

that are afforded by or arise under state law that exists for the benefit and protection of

the public,” then the court may consider the provision unconscionable.6

                          3. Paragraph 19 – choice of arbitrators

              The contractor’s business office is in Uniontown, Pennsylvania. Paragraph

19 requires that each of the three arbitrators be “a qualified residential contractor” having

an office or primarily doing work within a reasonable radius of the Uniontown office.

              6
              State ex rel. Richmond Am. Homes of W. Virginia, Inc. v. Sanders, 228
W.Va. 125, 137, 717 S.E.2d 909, 921 (2011) (quoting Syllabus Point 4, State ex rel.
Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265 (2002)).

                                             4
              This provision may be unconscionable, because it appears to give a lop-

sided, unfair advantage to the contractor. Only the contractor knows qualified residential

contractors in the area of its office, as opposed to the owners from Fairmont, West

Virginia.

               4. Paragraph 19 – Conflict between contract and AAA rules

              Paragraph 19 requires the parties’ arbitration to be “conducted in

accordance with the rules of the American Arbitration Association[.]” The AAA rules

provide that the AAA will choose a neutral arbitrator.          Nevertheless, Paragraph 19

conflicts with the AAA rules, and says that the parties will pick three arbitrators who are

residential contractors located near the contractor’s office. These arbitrators appear to be

anything but neutral.

                    5. Paragraph 19 – Prepayment of disputed amounts

              Paragraph 19 requires the owner to pay into an escrow account “any

amounts which are in dispute and subject to arbitration” before being allowed to file an

arbitration proceeding against the contractor.      As I noted previously, this provision

imposes costs that certainly may discourage the owner from pursuing arbitration and

causes an arbitration resolution of the dispute to be cost prohibitive.

              The parties did not present any unconscionability issues to the circuit court.

On remand, it is up to the parties to study the contract, develop the facts about any

                                              5
unfairness in the making and terms of the arbitration clause, and read the law before

presenting the matter to the circuit court.

              And on remand, the circuit court must keep in mind that “the courts of this

State are not hostile to arbitration or to adhesion contracts. We are hostile toward

contracts of adhesion that are unconscionable and rely upon arbitration as an artifice to

defraud a weaker party of rights clearly provided by the common law or statute.”7

              7
               State ex rel. Richmond Am. Homes of W. Virginia, Inc. v. Sanders, 228
W.Va. at 129, 717 S.E.2d at 913.

                                              6