Today I want to bring to your attention two new decision from the Supreme Court of Appeals of West Virginia, which deal with the substance and procedure of the arbitration process.
In the first opinion, State ex rel. Clites v. Clawges, 2009 WL 3320488 (W.Va. 2009), Clites was hired as a customer service representative of TeleTech, and participated in a group employee orientation session that included the discussion and completion of employment-related paperwork. After nearly three years of employment, however, TeleTech terminated Clites. She filed suit and alleged that her termination was due to a sexual harassment complaint she had filed against TeleTech.
TeleTech moved to dismiss and/or stay Clites’ lawsuit because she had signed an arbitration agreement that required her to arbitrate and to give up her right to a jury trial. The agreement provided that the arbitration would be conducted by an American Arbitration Association arbitrator in the city where the employee is employed, and that each party would bear its own fees and costs, except that the arbitrator would have discretion to award fees and costs to the prevailing party as provided by law.
The Circuit Court of Monongalia County, West Virginia denied the motion to dismiss and granted the motion to stay. The court found that the arbitration agreement was a contract of adhesion, but that TeleTech had stipulated through an affidavit that the arbitration would take place in Morgantown, West Virginia and that TeleTech would pay for all costs that would not be incurred by Clites in court, such as the cost of the arbitrator, the hearing room, and stenographer.
Clites sought a writ of prohibition against the court’s order on the grounds that the arbitration agreement was a contract of adhesion with unconscionable terms and therefore was unenforceable. She asserted that a reference in the agreement to Denver, Colorado required the arbitration to take place there and that she was responsible for fees and costs in excess of what she would have to pay in a civil action.
The Supreme Court, in a unanimous per curiam opinion, identified two issues. First, whether the Federal Arbitration Act (‘FAA") permitted the Court to review the arbitration agreement, and second, whether the agreement was unconscionable.
The Court determined that, notwithstanding the FAA’s scope and its preemption of state laws that invalidate the enforceabilty of arbitration agreements, "the issue of whether an arbitration agreement is a valid contract is a matter of state contract law and capable of state judicial review." (Emphasis in original). Thus, because Clites challenged whether the agreement was enforceable, the Court "is not preempted from giving judicial review to determine whether the Agreement at issue is valid and enforceable under our state contract law." (Emphasis in original.)
As to the second issue, the Court had no trouble finding that the agreement was a contract of adhesion: "The entire Agreement is boiler-plate language that was not subject to negotiation and there is no contention in the record that the Petitioner had any role or part in negotiating the terms of the Agreement."
But, and this is important, the fact that an agreement is a contract of adhesion does not necessarily render it unenforceable, which was the situation with Clites’ employment agreement. The Court focused on the fact that the arbitration would take place in Morgantown and that TeleTech had agreed to pay for costs in excess of those that Clites would have had to pay in a civil action. In a footnote to its finding that the agreement was not unconscionable, the Court stated that:
While we find this particular agreement to be enforceable, we limit the application of our holding to the facts of this case. The record before us was not sufficiently developed for us to address the many varied issues that arise in contract disputes such as the one between the parties to this action, including the issue of whether sufficient consideration was given in exchange for the Agreement. While [Clites] invited this Court at oral argument to vitiate the contract on the ground that there was a lack of consideration, this issue was not raised before or briefed to this Court. Accordingly, we decline to consider that ground.
I think that if TeleTech had insisted that the arbitration take place somewhere other than Morgantown and had not agreed to pay for costs above what Clites would pay to maintain a civil action, the Court would have found the agreement to be unenforceable because those terms, which Clites did not have an opportunity to negotiate, would have been deemed unconscionable.
The Court’s second decision, Crihfield v. Brown, 2009 WL 3642960 (W.Va. 2009), deals with the mechanics of the arbitration process. Brown filed suit against Crihfield for allegedly violating a restrictive covenant in a purchase agreement regarding the solicitation of various employees of The Home Show, LLC.
Crihfield moved to dismiss on the grounds that the purchase agreement required binding arbitration of all disputes. The Circuit Court of Kanawha County, West Virginia granted the motion, and Brown then instituted an arbitration proceeding against Crihfield, which proceeded through discovery and a preliminary hearing.
Then, on the evening before the final hearing, Brown’s counsel faxed a letter to the arbitrator advising that Brown was "withdrawing" from the arbitration in order to pursue an appeal of the circuit court’s order dismissing his state court action. Crihfield objected to Brown’s withdrawal.
Brown filed his petition for appeal, which the Supreme Court of Appeals rejected. So Brown added The Home Show, LLC as a party and attempted to reinstate the arbitration, this time between The Home Show and Crihfield. The American Arbitration Association dismissed the arbitration because The Home Show was not a party to the purchase agreement and Brown provided no grounds to support its involvement.
Brown then attempted to reinstate the arbitration between himself and Crihfield. A preliminary hearing and scheduling conference were held, but then Crihfield sought injunctive and declaratory relief in circuit court against Brown and The Home Show and moved for summary judgment. At the summary judgment hearing, the court advised that the original arbitrator agreed to resume the arbitration at the point when Brown had withdrawn, with the arbitration to be scheduled within 60 days.
Crihfield alleged that Brown failed to contact the arbitrator within 60 days, and the arbitrator subsequently advised that he would be unable to continue. So Brown and The Home Show allegedly picked another arbitrator and scheduled another arbitration, prompting another motion for summary judgment from Crihfield on the grounds that another arbitration with a new arbitrator was a new arbitration, which had not been the circuit court’s ruling. The circuit court denied the motion, however, and Crihfield appealed.
The Supreme Court first determined that the order denying Crihfield’s renewed motion for summary judgment was a final order within the "collateral order" doctrine exception to the "rule of finality," as discussed in James M.B. v. Carolyn M., 456 S.E.2d 16 (W.Va. 1995). So the remaining issue was "whether a party to a binding, irrevocable arbitration can unilaterally withdraw from that arbitration without leave of the arbitrator or agreement of the remaining party or parties."
You could stop reading the opinion at that point because the Court’s statement of the issue makes clear how it’s going to rule. But in the interest of completeness, the Court found that the AAA rules, which the parties agreed to follow, do not provide for a party’s unilateral withdrawal from arbitration, although there are provisions for postponement or modification of a schedule or for an arbitration to proceed in a party’s absence. The Court also found that other jurisdictions had held that a party cannot unilaterally withdraw from an arbitration.
Thus, the Court held, in its single new syllabus point, that:
A party to a binding, irrevocable arbitration cannot unilaterally withdraw from participation in the arbitration after it has begun. If a party to a binding, irrevocable arbitration unilaterally withdraws from the arbitration, the claims or issues raised by the withdrawing party are abandoned, thereby precluding them from being pursued in any subsequent arbitration or civil action.
The opinion, written by Justice Margaret Workman for a unanimous court, pointed out that Brown could have prosecuted his appeal before initiating the arbitration process or could have sought a postponement or modification of the arbitration schedule under AAA rules. But because he did neither, "[t]here simply is no basis for allowing a party who unilaterally withdraws from a binding irrevocable arbitration to reinstate the process that the party voluntarily chose to abandon."