IN WEST VIRGINIA, ARBITRATION CLAUSES DO NOT REQUIRE “SEPARATE” CONSIDERATION
West Virginia has joined a majority of states in concluding that an arbitration provision that is part of a larger contract does not require separate consideration if there is adequate consideration for the contract as a whole. The West Virginia Supreme Court of Appeals’ November 2012 opinion in Dan Ryan Builders, Inc. v. Nelson focused on an arbitration provision that required a home purchaser to submit all claims to arbitration, but allowed the home builder/seller to pursue litigation in some instances.
After the homeowners sued the builder alleging a number of significant defects in the home’s construction, the builder sought to compel arbitration. The District Court held that the arbitration provision was not enforceable because it lacked mutual consideration. On appeal, the Fourth Circuit concluded that the issue was unsettled in West Virginia and certified the question to the West Virginia Supreme Court to determine whether “an arbitration provision which appears as a single clause in a multi-clause contract [must] be supported by mutual consideration when the contract as a whole is supported by adequate consideration?”
After concluding that separate consideration was not required, the West Virginia Supreme Court noted that lack of mutuality in a contractual obligation may be considered by a court in assessing unconscionability. The Court made clear that one-sided contract provisions are not always unconscionable, and that the determination is fact-specific.
In its Dan Ryan Builders decision, the West Virginia Supreme Court also overruled part of its 1998 decision in Arnold v. United Companies Lending Corp. That decision concluded that arbitration provisions in consumer loan transactions requiring a buyer to arbitrate all claims while allowing the lender to litigate are unconscionable, void, and unenforceable as a matter of law. Acknowledging that the Federal Arbitration Act requires that arbitration provisions be placed on the same footing as other contract provisions, the Court overruled its decision in Arnold to the extent that it targeted arbitration agreements in consumer loan transactions for different treatment.
In Dan Ryan Builders, the Fourth Circuit vacated the District Court’s judgment and remanded the case for a determination of whether the arbitration clause compelling one, but not both, parties to arbitrate in all instances was unconscionable.
Although Dan Ryan Builders was not an employment or labor case, it is important to employers because it resolves West Virginia’s position on the need for separate consideration for arbitration provisions that are part of a larger contract. Adequate consideration for the contract as a whole is sufficient. (However, stand-alone arbitration agreements still require their own consideration.) The facts of each case will determine whether an arbitration provision that gives different rights to the parties is unconscionable.