Opinion
No. 19-0905
11-24-2020
HOME INSPECTIONS OF VA AND WV, LLC, Petitioner v. Jesse HARDIN, Respondent
Joseph L. Caltrider, Esq., Bowles Rice LLP, Martinsburg, WV, Counsel for Petitioner. Kathy M. Santa Barbara, Esq., The Law Office of Kathy M. Santa Barbara, Martinsburg, WV, Counsel for Respondent.
Joseph L. Caltrider, Esq., Bowles Rice LLP, Martinsburg, WV, Counsel for Petitioner.
Kathy M. Santa Barbara, Esq., The Law Office of Kathy M. Santa Barbara, Martinsburg, WV, Counsel for Respondent.
ARMSTEAD, Chief Justice: This is an interlocutory appeal of a circuit court's order denying a motion to compel arbitration. Petitioner Home Inspections of VA and WV, LLC ("Home Inspections") and Respondent Jesse Hardin ("Mr. Hardin") are parties to a contract that includes an arbitration provision. After Mr. Hardin filed a civil suit against Home Inspections and others, Home Inspections moved the circuit court to dismiss the case as it relates to Home Inspections or, in the alternative, to compel arbitration. Mr. Hardin argued that the arbitration provision was ambiguous, and the circuit court agreed. However, upon consideration of the parties’ briefs, the record before us, and the applicable law, we find that the arbitration provision is clear and unambiguous and thus reverse the circuit court's order and remand the case for further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
On or about August 17, 2017, Mr. Hardin purchased two parcels of real estate improved with several structures from William and Sharon Paxson ("The Paxsons"). The sales contract was contingent upon a home inspection being performed on the structures. Mr. Hardin's realtor arranged for Paul Barnhart of Home Inspections to inspect the Structures.
The structures included a guest house, a detached three-car garage, and a main house.
Mr. Hardin alleges that after the inspection was performed, he was provided with a contract to sign. Mr. Hardin admits to signing the contract. Over one year later, on or about August 6, 2018, Mr. Hardin alleges that he discovered a number of issues with his property so he telephoned petitioner to discuss his concerns about the inspection report. Following this phone call, Mr. Hardin alleges that he was provided with a copy of the inspection contract.
On June 21, 2019, Mr. Hardin filed a complaint against the Paxsons and Home Inspections alleging breach of contract, negligence and fraud. On August 9, 2019, Home Inspections filed a motion to dismiss, or alternatively, a motion to stay further proceedings and compel arbitration. Specifically, Home Inspections argued that the circuit court lacked jurisdiction and that Mr. Hardin failed to state a claim under Rule 12(b)(6) of the West Virginia Rules of Civil Procedure because their contract contained an enforceable arbitration provision. The arbitration provision provides,
Mr. Hardin alleges that the property contained numerous undisclosed defects, which were known or should have been known, to the Paxsons. He also alleges that Home Inspections failed to report, or "adequately report," the defects, which resulted in a breach of their contract and professional negligence.
ARBITRATION: Any dispute concerning the interpretation of this agreement or arising from this inspection report, except for inspection fee payment, shall be resolved informally between the parties.
In his response to this motion, Mr. Hardin argued that the disputed provision was ambiguous and "anticipates only that any disputes between the parties ‘shall be resolved informally between the parties.’ "
On September 13, 2019, the circuit court entered an order denying Home Inspection's motion to compel arbitration. The Court acknowledged that the provision contains a heading that reads: "ARBITRATION." However, the circuit court found the provision to be ambiguous because the sentence following the heading "ARBITRATION" required the parties to resolve certain disputes "informally." Additionally, the circuit court was critical of the provision because it did not "include terms such as how are arbiters to be selected, how many arbiters will decide the issue, where arbitration will take place, by what rules and by whose authority and whether or not the arbiters grant or denial of a reward [sic] is binding or appealable."
Because the circuit court found that no enforceable agreement to arbitrate existed, it did not address the issues of lack of subject matter jurisdiction or the alleged failure of Mr. Hardin to state a claim upon which relief can be granted.
This appeal by Home Inspections followed.
II. STANDARD OF REVIEW
Home Inspections appeals an interlocutory order denying its motion to dismiss, or, alternatively, to compel arbitration. "Typically, interlocutory orders are not subject to this Court's appellate jurisdiction." Credit Acceptance Corp. v. Front, 231 W. Va. 518, 522, 745 S.E.2d 556, 560 (2013). However, this case is properly before this court because "[a]n order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine." Syl. Pt. 1, Credit Acceptance Corp. v. Front , 231 W. Va. 518, 745 S.E.2d 556. "When an appeal from an order denying a motion to dismiss and compel arbitration is properly before this Court, our review is de novo. " Syl. Pt. 1, W. Va. CVS Pharm. LLC v. McDowell Pharm., Inc. , 238 W. Va. 465, 796 S.E.2d 574 (2017). Further, when we review contractual issues, "we apply a de novo standard of review to [a] circuit court's interpretation of [a] contract." Id. at 469, 796 S.E.2d at 578 (quoting Finch v. Inspectech, LLC , 229 W. Va. 147, 153, 727 S.E.2d 823, 829 (2012) ).
III. DISCUSSION
In this case, we are being asked to determine whether the arbitration agreement contained in the parties’ contract is valid. The provision at issue provides:
ARBITRATION: Any dispute concerning the interpretation of this agreement or arising from this inspection report, except one for inspection fee payment, shall be resolved informally between the parties.
Relying upon this provision, Home Inspections moved to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (2002) ("FAA"). The FAA provides that arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (1947). In response, Mr. Hardin argued that the provision was ambiguous. We have previously held:
When a lawsuit is filed implicating an arbitration agreement, and a party to the agreement seeks to resist arbitration, [this Court] has interpreted the FAA to require application of the doctrine of "severability" or "separability." The gist of the doctrine is that an arbitration clause in a larger contract must be carved out, severed from the larger contract, and examined separately. The doctrine "treats the arbitration clause as if it is a separate contract from the contract containing the arbitration clause, that is, the ‘container contract.’ " Under the doctrine, arbitration clauses must be severed from the remainder of a contract, and must be tested separately under state contract law for validity and enforceability.
Schumacher Homes of Circleville, Inc. v. Spencer , 237 W. Va. 379, 387-388, 787 S.E.2d 650, 658-659 (2016) (internal citations omitted) (" Schumacher Homes II ").
When a party moves to compel arbitration, this Court has held that "the authority of the trial court is limited to determining the threshold issues of (1) whether a valid arbitration agreement exists between the parties; and (2) whether the claims averred by the plaintiff fall within the substantive scope of that arbitration agreement." Syl. Pt. 2 (in part), State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W. Va. 250, 692 S.E.2d 293 (2010).
Because the circuit court erroneously determined that no valid arbitration agreement exists in this matter, it did not address the second question of whether the respondent's claims fell within the scope of the agreement, and we do not address this question on appeal. Because we remand this action for further proceedings, this question of whether the claims raised by respondent fall within the scope of the arbitration agreement should be determined by the circuit court on remand.
The first issue – whether a valid arbitration agreement exists – is one of state law. Brown ex rel. Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011), overruled on other grounds by Marmet Health Care Center, Inc. v. Brown, 565 U.S. 530, 132 S. Ct. 1201, 182 L. Ed. 2d 42 (2012) (" Brown I "). This same issue --- ‘whether a valid arbitration agreement exists’—is really two intertwined issues. First, is there an agreement? Second, if there is an agreement, is it valid (i.e., in the sense of being enforceable)?" Certegy Check Serv., Inc. v. Fuller , 241 W. Va. 701, 704, 828 S.E.2d 89, 92 (2019).
Home Inspections asserts that the circuit court erred in concluding that the arbitration provision was ambiguous. Specifically, Home Inspections challenges the circuit court's holding that "by agreeing to resolve any dispute informally," the parties did not assent to be bound by arbitration. Mr. Hardin alleges that the arbitration provision is ambiguous because the word "ARBITRATION" is followed by language that requires certain disputes to be resolved "informally between the parties." We concede that the arbitration provision could certainly have been more artfully drafted. However, this simple fact does not render it ambiguous or unenforceable.
"The mere fact that parties do not agree to the construction of a contract does not render it ambiguous. The question as to whether a contract is ambiguous is a question of law to be determined by the court." Syl. Pt. 1, Berkeley Cty. Pub. Serv. Dist. v. Vitro Corp. , 152 W. Va. 252, 162 S.E.2d 189 (1968). Further, this Court has acknowledged the general rule that "words in a contract will be given their usual and primary meaning at the time of the execution of the contract." Oresta v. Romano Bros., Inc. , 137 W. Va. 633, 644, 73 S.E.2d 622, 628 (1952).
The heading of the disputed provision contains one word – that word is ARBITRATION. Home Inspections argues that the heading is conspicuous and clearly evidences the parties’ intent to arbitrate. We agree. The provision is explicitly titled "ARBITRATION." In addition to identifying the provision as the "ARBITRATION" provision of the contract, the parties then agree to informally resolve certain disputes that could arise between them, except for inspection fee payment.
We are not persuaded by respondent's argument that the disputed provision contains two very contradictory terms. The provision contains a one word heading – "ARBITRATION" – which is followed by a sentence that that requires certain disputes be "resolved informally between the parties." Arbitration is an informal process. Both this Court and the Supreme Court of the United States have described arbitration as being informal. In 2011, the United States Supreme Court noted that "the principal advantage of arbitration [is] its informality. AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 348, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). In Cunningham v. LeGrand , 237 W. Va. 68, 785 S.E.2d 265 (2016), this Court acknowledged the informal nature of arbitration when it was asked to review a circuit court's confirmation of an arbitration award and the judgment the court entered on that award. When considering petitioner's argument in Cunningham , we noted that the argument wholly conflicted with the "more informal nature of arbitration proceedings." Id. at 75, 785 S.E.2d at 272.
In this case, the circuit court, however, rejected the clear equation of arbitration and informal dispute resolution present in the parties’ arbitration provision. The court based that rejection, in large part, on cases from other jurisdictions analyzing arbitration provisions that made reference to informal dispute resolution. For example, in Kramer v. Eagle Eye Home Inspections, Inc. , cited by the circuit court, a Nebraska court of appeals held that an arbitration agreement containing the language, "it is agreed that this dispute or claim shall be resolved informally between the parties or by binding Arbitration under the Construction Industry Arbitration Rules" of the American Arbitration Association," was unenforceable – not because it was ambiguous but because it did not comply with a Nebraska statute. Id. , 14 Neb.App. 691, 716 N.W.2d 749, 763 (2006), overruled by Knights of Columbus Council 3152 v. KFS BD, Inc. , 280 Neb. 904, 791 N.W.2d 317 (2010), and abrogated by Tracy Broad. Corp. v. Telemetrix, Inc. , 17 Neb. App. 112, 756 N.W.2d 742 (2008).
In CUNA Mutual Insurance Society v. Office & Professional Employees International Union , Local 39 , also cited by the circuit court, the court observed that a collective bargaining agreement "require[d] several attempts at informal resolution [before] allow[ing] either party to appeal any grievance to arbitration if the grievance cannot be settled informally." Id. No. 04-C-138-C, 2004 WL 2713088, at *7 (W.D. Wis. Nov. 29, 2004), aff'd in part sub nom. Cuna Mut. Ins. Soc. v. Office & Prof'l Employees Int'l Union Local 39, 443 F.3d 556 (7th Cir. 2006). The enforceability of that arbitration agreement was not an issue in the case. Finally, in G&G Closed Circuit Events, LLC v. Castillo , the federal district court analyzed an arbitration provision that explicitly directed that the parties would (a) first try to resolve any disputes informally, and (b) then proceed to binding arbitration. Id. , No. 14-CV-02073, 2017 WL 1079241, at *3-4 (N.D. Ill. Mar. 22, 2017).
Significantly, the arbitration provisions at issue in those cases presented informal dispute resolution as either a prerequisite to arbitration or as an alternative to arbitration. The arbitration provision in this case is different. Here, the language in the provisions directly links "ARBITRATION" (as stated in the parties’ agreement) to informal dispute resolution. As explained above, arbitration is an informal process, a characteristic recognized by this Court and the Supreme Court of the United States. Simply put, we see nothing in the arbitration provision before us that would support the circuit court's finding that the word "ARBITRATION" and the phrase "shall be resolved informally between the parties" in that provision conflict, create an ambiguity, and render the arbitration provision unenforceable.
We are certainly aware that there are various methods of informally resolving a dispute. However, when the requirement to informally resolve a dispute is contained in a provision with the heading "ARBITRATION" and there are no other methods mentioned, the plain meaning of the provision requires the parties to arbitrate. For this reason, the sentence that follows "ARBITRATION" does not render the provision ambiguous.
Further, in concluding that the arbitration provision was not valid, the circuit court improperly based its decision, in part, on the fact that the provision "does not include terms such as how are arbiters to be selected, how many arbiters will decide the issue, where arbitration will take place, by what rules and by whose authority and whether or not the arbiters’ grant or denial of a reward [sic] is binding or appealable." In fact, the circuit court indicated that "[i]f Home Inspections wanted arbitration, it had to clearly and unambiguously set forth those requirements, which would enable a court to enforce the terms of the agreement." However, the parties were not required to set forth the specific details of the arbitration process for there to be a meeting of the minds that arbitration was the method to be followed for resolving disputes. For example, neither the FAA nor the West Virginia Legislature require that arbitration provisions contain a method for naming an arbitrator. The FAA provides:
If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein , or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act
under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.
9 U.S.C. § 5 (emphasis added).
West Virginia Code § 55-10-13(a) similarly provides, "[i]f the parties have not agreed on a method , the agreed method fails or an arbitrator appointed fails or is unable to act and a successor has not been appointed, the court, on motion of a party to the arbitration proceeding, shall appoint the arbitrator." W. Va. Code § 55-10-13 (emphasis added). In addressing this issue, the Seventh Circuit concluded that "[t]he fact that an agreement to arbitrate leaves for later negotiations the selection of the particular arbitrator does not render that agreement so vague as to be unenforceable. If that were the case, then section 5 of the FAA, which provides for the court to appoint an arbitrator in some circumstances, would be pointless." Hunt v. Moore Brothers, Inc. , 861 F.3d 655, 659 (7th Cir. 2017), cert. denied, ––– U.S. ––––, 138 S. Ct. 671, 199 L. Ed.2d 534 (2018). Other courts have reached similar conclusions. See also Robertson v. Mount Royal Towers , 134 So. 3d 862, 868 (Ala. 2013) (explaining that, "although ... the arbitration agreements do not set forth all the procedural details of any arbitration that might result from the agreements, they do clearly evince the parties’ intent to submit future disputes to arbitration," and so "look[ing] to the FAA to fill in the gaps in the arbitration agreements so as to give effect to the expectations of the parties as expressed by those agreements"); South Alabama Pigs, LLC v. Farmer Feeders, Inc. , 305 F. Supp. 2d 1252, 1261-62 (M.D. Ala. 2004) (enforcing an arbitration provision that did not specify a method for selecting arbitrators, state whether arbitration would be binding, or provide any details for how the arbitration would proceed). In the instant case, in view of those authorities, the circuit court was clearly wrong to base its conclusion, in part, on the failure of the disputed provision to include specific terms, including how arbitrators will be selected.
Accordingly, we find that the arbitration provision, while general in nature and lacking in specific detail regarding the arbitration process to be followed, nonetheless reflected the intent of the parties to arbitrate "[a]ny dispute concerning the interpretation of [the] agreement or arising from [the] inspection report," and was not ambiguous. Therefore, we believe the provision was an enforceable agreement to arbitrate.
IV. CONCLUSION
For the reasons set forth above, we reverse the September 13, 2019 order of the circuit court and remand this case for further proceedings.
Reversed and Remanded.
JUSTICE WORKMAN and JUSTICE HUTCHISON dissent and reserve the right to file a dissenting opinion.
Workman, Justice, dissenting:
This Court's arbitration jurisprudence has dutifully followed the federal model in recent years, a model that mandates such a strong preference for arbitration and allows for such a limited scope of judicial review that, although I have acceded to the mandate of controlling federal law as required by my judicial oath, I have long been concerned that "an average citizen's right to a jury trial in a civil matter is vanishing before our very eyes." Employee Resource Group, LLC v. Harless , No. 16-0493, 2017 WL 1371287, at *8 (W. Va. April 13, 2017) (memorandum opinion) (Workman, J., concurring). In the instant case, however, the majority's opinion takes a giant step too far. I cannot agree that the single word arbitration, even capitalized and in bold font as it is, is sufficient to turn the following twenty-seven words into an enforceable arbitration clause: "ARBITRATION : Any dispute concerning the interpretation of this agreement or arising from this inspection and report, except for inspection fee payment, shall be resolved informally between the parties."
See , e.g. , Bayles v. Evans , 243 W. Va. 31, 842 S.E.2d 235 (2020) ; Rent-A-Center, Inc. v. Ellis , 241 W. Va. 660, 827 S.E.2d 605 (2019) ; SWN Production Co., LLC v. Long , 240 W. Va. 1, 807 S.E.2d 249 (2017).
The manner in which this contract was formed suggests some element of procedural unconscionability. The terms of the contract also suggest substantive unconscionability because, under the majority opinion's interpretation, the lopsided contract precludes the homeowner from ever going to court while simultaneously permitting the home inspector to go to court on the one issue most likely to engender a dispute: payment of the inspection fee.
Our case law holds that "[a] contract term is unenforceable if it is both procedurally and substantively unconscionable." Syl. pt. 20, in part, Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011) (emphasis added). This holding, however, seems to directly conflict with the Uniform Commercial Code, which permits a court to find a contract term unenforceable if it is only substantively unconscionable. See W. Va. Code § 46-2-302 ("If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract[.]"). Other state courts have also found that "[s]ubstantive unconscionability alone is sufficient to support a finding of unconscionability." McKee v. AT & T Corp., 164 Wash.2d 372, 191 P.3d 845, 857 (2008).
I believe Syllabus Point 20 of Brown deserves to be reconsidered and modified. As the Supreme Court of Missouri found,
it is inaccurate to suggest that an agreement or provision must be separately found to be both procedurally and substantively unconscionable to be invalid. It is more accurate to state that a court will look at both the procedural and substantive aspects of a contract to determine whether, considered together, they make the agreement or provision in question unconscionable.
Eaton v. CMH Homes, Inc. , 461 S.W.3d 426, 432-33 (Mo. 2015) (cleaned up).
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"In the context of cases affected by the Federal Arbitration Act, we have found that courts are limited to weighing only two questions: does a valid arbitration agreement exist? And do the claims at issue in the case fall within the scope of the arbitration agreement?" Golden Eagle Res., II, L.L.C. v. Willow Run Energy, L.L.C. , 242 W. Va. 372, 378, 836 S.E.2d 23, 29 (2019).
It is a fundamental principle in West Virginia law that "[a] meeting of the minds of the parties is a sine qua non of all contracts." Syl. Pt. 8, Chesapeake Appalachia, L.L.C. v. Hickman , 236 W. Va. 421, 781 S.E.2d 198 (2015) (citing Syl. Pt. 1, Martin v. Ewing, 112 W.Va. 332, 164 S.E. 859 (1932) ). In this case, the notion that there was a meeting of the minds about arbitration is laughable. The parties’ agreement, if any, is that "[a]ny dispute ... shall be resolved informally between the parties[,]" a phrase which could not possibly be more vague. There is no explanation as to how this informal resolution is to be carried out, or what happens if the parties are unable to resolve the dispute between themselves. Left totally unanswered are the following questions, among others: Where are the parties to meet? What are the rules? What law governs? Who pays the costs? Who is the decider in case of an impasse, and who picks him or her? Is his or her decision binding? If not, what's the next step: mediation? litigation? pistols at dawn? Finally, and most critically, who gets to answer these questions?
Compare the so-called arbitration clause upheld by the majority in the instant case to that upheld against a vagueness charge in Blevins v. Flagstar Bank, F.S.B. , No. 3:12-CV-134, 2013 WL 3365252 (N.D.W. Va. July 3, 2013). At the outset, the court noted that "[t]he title "ARBITRATION " was offset from the surrounding text." Id. at *10. Significantly, however, that point of similarity with the instant case was the only point of similarity between the two; the district court went on to examine the arbitration clause itself, not just its one-word heading.
The arbitration provision in the contract also explained the process to the parties. First, the provision explained that any claims arising from the contract or by virtue of alleged representations "shall be settled and finally determined by arbitration and not in a court of law." Second, the provision stated that before "commencing arbitration, the dispute shall first be mediated." This highlighted that there was a difference between mediation and arbitration. Last, the provision states that the parties "specifically acknowledge that they are and shall be bound by arbitration and are barred from initiating any proceeding or action whatsoever in connection with this Agreement." This emphasizes that arbitration is a binding process, and that parties are prohibited from initiating other proceedings or actions. Therefore, the arbitration provision in the contract provides some explanation of the process.
Id. at *11 ; see also Luginbuhl v. City of Gallup , 302 P.3d 751 (N.M. App. 2013) (rejecting vagueness claim where arbitration clause specified who selects the mediator, who bears the costs, and that the outcome is final and binding on both parties). Here, in contrast, what explanation of anything did the respondent have?
The majority's analysis of this issue consists of nothing more than a logical fallacy known as ignoratio elenchi , or irrelevant conclusion. First, the majority cites section five of the Federal Arbitration Act, 9 U.S.C. §§ 1 to 16 (2002), for the proposition that arbitration provisions are not required to contain a method for selection of an arbitrator. Then, the majority cites West Virginia Code § 55-10-13 (2016) for the same proposition, emphasizing the words "[i]f the parties have not agreed on a method" as if those words somehow seal the deal for the sweeping conclusion that follows: "[t]he circuit court was clearly wrong to base its conclusion on the failure of the disputed provision to include specific terms, including how arbitrators will be selected." The logical fallacy is readily apparent: the fact that an arbitration clause does not have to contain a methodology for selection of an arbitrator does not prove that the arbitration clause does not have to contain any terms at all. In this regard, the few cases cited by the majority all involve arbitration agreements which, although "not set[ting] forth all the procedural details ... do clearly evince the parties’ intent to submit future disputes to arbitration." Robertson v. Mount Royal Towers , 134 So.3d 862, 868 (Ala. 2013).
Here, in contrast, nothing evinces the respondent's intent to submit any disputes to arbitration. The fact that the so-called arbitration provision in this case contains no terms whatsoever is not the only problem with said provision; the twenty-seven words that are contained therein are ambiguous. Courts are in general agreement that to be enforceable, an arbitration clause must have "sufficient certainty of terms so that the obligations involved can be determined." Estate of Decamacho ex rel. Guthrie v. La Solana Care and Rehab, Inc. , 234 Ariz. 18, 316 P.3d 607, 610 (2014). In similar vein, this Court has held that "[i]n construing the terms of a contract, we are guided by the common-sense canons of contract interpretation. One such canon teaches that contracts containing unambiguous language must be construed according to their plain and natural meaning." Fraternal Order of Police, Lodge No. 69 v. City of Fairmont , 196 W. Va. 97, 101, 468 S.E.2d 712, 716 (1996) (citing Payne v. Weston , 195 W. Va. 502, 507, 466 S.E.2d 161, 166 (1995) ). We went on in Fraternal Order of Police to note that,
[c]ontract language usually is considered ambiguous where an agreement's terms are inconsistent on their face or where the phraseology can support reasonable differences of opinion as to the meaning of words employed and obligations undertaken. In note 23 of Williams [v. Precision Coil, Inc. , 194 W. Va. 52, 65, 459 S.E.2d 329, 342 (1995) ], we said: "A contract is ambiguous when it is reasonably susceptible to more than one meaning in light of the surrounding circumstances and after applying the established rules of construction." (Emphasis added).
196 W. Va. at 101, 468 S.E.2d at 716 (footnote omitted).
In its opinion, the majority concludes that the so-called arbitration provision in the instant case is unambiguous for two reasons: first, because the provision is headed by the word "arbitration," in capital letters and bold font; and second, because the word "informally" would necessarily be understood to denote arbitration, since both the United States Supreme Court and this Court have stated that arbitration is an informal process as compared to litigation. With respect to the first point, although I agree that the word "arbitration" is certainly important – indeed, in most circumstances, it would be a neon sign advertising what's to come – it is not sufficient, standing alone, to create an enforceable arbitration clause. With respect to the second point, it is pure sophistry to contend that the words "shall be resolved informally between the parties" are unambiguous. To any layman, i.e., someone such as the respondent, who cannot be expected to have read AT&T Mobility or Cunningham , see supra note 2, the words are "reasonably susceptible to more than one meaning in light of the surrounding circumstances[,]" Fraternal Order of Police , 196 W. Va. at 101, 468 S.E.2d at 716. To a layman, I believe that the words would reasonably suggest a negotiation, possibly held at the petitioner's office, possibly at the respondent's home. Stretching the words as far as they could reasonably go, again to a layman, the words might suggest a mediation. Under no reasonable construction can it be said that to a layman, the words would clearly convey that resolution of a dispute between the parties could only be effected through the mechanism of binding arbitration, and that no judicial remedies would be available under any circumstances.
See AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 348, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (noting that "the principal advantage of arbitration [is] its informality."); Cunningham v. LeGrand , 237 W. Va. 68, 75, 785 S.E.2d 265, 272 (2016) (noting the "more informal nature of arbitration proceedings" due, in part, to "[d]ispensation with the formal rules of evidence and procedure").
The majority's decision today strips the respondent of his right to have his case decided by a jury of his peers in a West Virginia courtroom. Instead, he will have his claims decided in some unknown forum, by some unknown arbitrator, under some unknown rules, at some unknown cost, pursuant to the laws of some unknown jurisdiction, and with no avenue for appeal in the event of an adverse decision. This isn't just bad law; it's manifestly unfair and unjust to the respondent. Accordingly, I dissent.
Hutchison, Justice, dissenting:
(Filed November 24, 2020)
Whenever this Court confronts a case with the word "arbitration," the true issue in the case invariably has nothing to do with arbitration. Instead, the issue focuses on some picayune problem every lawyer addressed in their contracts class the first year of law school. Invariably, somewhere in the case file we find a lawyer or judge who gets all misty-eyed with reverence because somebody said the word "arbitration," like it has some mystical effect. At its root, though, the case always turns on some basic contract formation issue like offer, acceptance, or consideration, or some contract defense like waiver or unconscionability.
That's what this case is: a run-of-the mill fact pattern with a run-of-the-mill law-school legal issue. It's a well-worn tale: plaintiff Hardin contracted to buy two homes and then hired defendant Home Inspections of VA and WV to give the properties a review. The inspection was or was not negligent, it supposedly missed defects, the plaintiff completed the purchase and discovered the defects, and the plaintiff sued the inspector.
This appeal, of course, has nothing to do with the merits of the parties’ claims and defenses. No, this case is about the inspection company's contract. After the inspection was complete, the inspection company had the plaintiff sign a contract.1 That contract has the clause that is the center of this appeal. It has a title saying "Arbitration," but the one-sentence paragraph that follows says absolutely nothing about arbitration:
Any dispute concerning the interpretation of this agreement or arising from this inspection report, except for inspection fee payment, shall be resolved informally between the parties.
My first thought reading this clause was the obvious one: whatever lawyer wrote this should be stripped of his license. I am all for brevity in writing, but this paragraph is beyond brief. It is ambiguous and downright meaningless. The heading does say "arbitration," but what follows has nothing to do with arbitration. My research revealed that this clause was taken from a form "home inspector contract" that is floating around in the legal world. That form has a complete arbitration clause with details about how to conduct an arbitration, details that, sadly, some lawyer got their hands on and butchered to create the pitiful little clause above. What the majority opinion fails to acknowledge is, a federal court has looked at the form home inspector contract and concluded that the above clause has absolutely nothing to do with arbitration.
In Harkleroad v. Claxton , No. CV 408-167, 2009 WL 10678091 (S.D. Ga. June 10, 2009), a federal judge in Georgia looked at a lawsuit between a homeowner and a home inspector over a supposedly negligent inspection (which, as I said, is a run-of-the-mill fact pattern). When the homeowner sued, the home inspector responded with a motion to compel arbitration. The Georgian home inspector's contract had the following, complete , arbitration clause:
Arbitration: Any dispute concerning the interpretation of this agreement or arising from this inspection and report, except one for inspection fee payment, shall be resolved informally between the parties or by arbitration conducted in accordance with the rules of a recognized arbitration association except that the parties shall select an arbitrator who is familiar with the home inspection industry. The arbitrator shall conduct summary judgment motions and enforce full discovery rights as a court would as provided in civil proceedings by legal code.
2009 WL 10678091, at *1 (emphasis added).
In the instant case, the drafter deliberately excised all of the language that actually talked about arbitration. In the instant case, the clause says cases "shall be resolved informally between the parties;" in the Georgia case, the paragraph said cases "shall be resolved informally between the parties or by arbitration ," then described the arbitration process the parties agreed to follow.
The homeowner in Georgia argued that the phrase "shall be resolved informally between the parties" was "vague and ambiguous." The federal court agreed, but then said the ambiguity in the phrase was offset by the phrase "or by arbitration." As the federal court said, the "shall be resolved informally" "language can reasonably be interpreted to mean that if the parties cannot settle any disputes between themselves without resorting to legal measures, i.e. ‘informally,’ then they must arbitrate (as opposed to going to court)." Id. at *3.
Somehow the majority opinion failed to recognize, like the federal court in Georgia, that the clause at issue in this case says nothing more than that the parties should try to settle disputes between themselves without resorting to legal measures. To the extent the clause has the word "arbitration" in the title, the word has no agreed-upon effect to the parties who formed the contract.
Ambiguity exists in a contract when a term or condition is uncertain in meaning or can be fairly understood in more than one way. "The term ‘ambiguity’ is defined as language reasonably susceptible of two different meanings or language of such doubtful meaning that reasonable minds might be uncertain or disagree as to its meaning." Syl. pt. 4, Estate of Tawney v. Columbia Nat. Res., L.L.C. , 219 W. Va. 266, 633 S.E.2d 22 (2006). "Contract language is considered ambiguous where an agreement's terms are inconsistent on their face or where the phraseology can support reasonable differences of opinion as to the meaning of words employed and obligations undertaken." Syl. pt. 6, State ex rel. Frazier & Oxley, L.C. v. Cummings , 212 W. Va. 275, 569 S.E.2d 796 (2002). See also Williams v. Precision Coil, Inc. , 194 W. Va. 52, 65 n. 23, 459 S.E.2d 329, 342 n. 23 (1995) ("A contract is ambiguous when it is reasonably susceptible to more than one meaning in light of the surrounding circumstances and after applying the established rules of construction.").
In this case, the phraseology that the drafter used in the disputed clause supports reasonable differences of opinion. The circuit court wisely reached this conclusion. This is not a "did so/did not" situation where one party says the clause is ambiguous and the other says it is not. The circuit judge, and two justices on this Court, say the clause makes no sense. Even the majority opinion says the language is vague because "there are various methods of informally resolving a dispute." ––– W.Va. ––––, ––––, 852 S.E.2d 240, 245 (Nov. 19, 2020). So despite centuries of law holding that ambiguous contracts are construed against the drafter, the majority opinion gives this inspection contract a construction favorable to the drafter.
What really troubles me is the majority opinion's conclusion. The majority concludes, on the one hand, that the clause is "clear" and shows the parties’ unambiguous agreement to arbitrate. But on the other hand, the majority opinion concedes that the clause says absolutely nothing about the parties’ agreement to arbitrate. It does not say who should conduct the arbitration, how or by what rules it should be conducted, when, where, or most importantly, who should pay. The majority opinion just points out that the Federal Arbitration Act ( 9 U.S.C. § 5 ) and the West Virginia Revised Uniform Arbitration Act ( W. Va. Code § 55-10-13 ) empower the circuit court to appoint an arbitrator.
Speaking as a former circuit judge, and in the context of this case, I am flummoxed how a judge is supposed to write the parties a new arbitration agreement. This is not a situation where the parties have clearly agreed to a contract and the judge is just helping fill in some blanks, guided by the parties’ intent. No, the majority opinion is actually telling the judge to create out of whole cloth a new arbitration contract. Not only is there an arbitrator to be appointed, the judge also gets to pick the rules that the arbitrator will use, define when and where the arbitration will take place, and can decide who will pay the arbitrator and how much that arbitrator gets paid.
An even more troubling implication of the majority opinion is this: what if the judge imposes contractual terms on the parties that are unconscionable or unfair? Can the parties really object, if the judge is simply giving effect to the meaningless language in their contract? In this case, the defendant home inspector is demanding that the so-called "arbitration clause" be enforced and is demanding that the circuit judge, supposedly, "fill in a few blanks." Does that mean the judge can appoint as arbitrator a lawyer paid for exclusively and lavishly by the defendant who is demanding arbitration? Can the judge order that the arbitration be conducted in the judge's courtroom under the Rules of Civil Procedure and the Rules of Evidence, with an informal advisory panel of six neutral members of the community to help resolve questions of fact? In the future, can a defendant honestly complain that the judge's arbitration terms were not contemplated by the parties in their original agreement? Because, frankly, nothing seems to have been contemplated by the home inspector's lawyer when the "arbitration clause" in this case was drafted, so it is impossible to say what the parties meant by the clause.
I do not believe that circuit judges should be in the business of writing entire contracts for litigants, whether they pertain to arbitration or not. The circuit court saw that this clause was incomprehensible and refused to enforce it because it was ambiguous and meaningless. I dissent because the majority opinion saw the word "arbitration" and decided to give it whatever meaning they chose, without understanding the far-reaching consequences.