How will the West Virginia Court rule in the wake of Concepcion and Marmet?
April 12, 2012
Over the past decade, arbitration under the Federal Arbitration Act1 (“FAA”) has been the subject of much debate and discussion among courts across the United States, including both the West Virginia Supreme Court of Appeals (“the WVSCA”) and the Supreme Court of the United States (“the Supreme Court”). Historically, the Supreme Court has ardently favored the resolution of disputes through arbitration,2 while the WVSCA has been more cautious to embrace arbitration in the place of litigation. Although the WVSCA has repeatedly acknowledged the preemptive force of the FAA, it has limited the applicability of the FAA by also acknowledging a variety of exceptions. In doing so, the WVSCA has reviewed and struck down a multitude of arbitration provisions in favor of the individual wishing to litigate his or her claims. The WVSCA’s reluctance to enforce arbitration agreements has been largely characterized by its steadfast belief that, under certain circumstances, the public policy in West Virginia is not served by the enforcement of arbitration agreements. Recently, however, the WVSCA’s latest limitation of the FAA was appealed to the Supreme Court, and was ultimately reversed.3 The Supreme Court’s reversal made clear that the high court will not accept what it perceives to be “categorical” rules prohibiting arbitration provisions in contracts based upon state court interpretations of state public policy. In the wake of the Supreme Court’s recent reversal and remand to the WVSCA, the question remains – without considering West Virginia public policy, how will the WVSCA rule?
Section 2 of the FAA provides that an agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”4 Under the FAA’s savings clause, “generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [Section] 2[.]”5 It is this language – outwardly basic in concept – which has spurred a whole line of varying, and in some instances conflicting, opinions from courts throughout the country. These decisions are replete with distinctions and variations in both the interpretation and application of this language, and somewhat of a divide has developed between many courts in how this language applies and to what this language applies. This wide-ranging distinction has recently been tested with specific regard to the Supreme Court and the WVSCA, begging the question: How will the WVSCA’s decisions on arbitration and the FAA be affected going forward?
The Supreme Court has consistently made clear that arbitration agreements cannot be invalidated for reasons unique to arbitration, which includes wisdom of public policy unique to arbitration.6 The Supreme Court has repeatedly disallowed state courts from “decid[ing] that a contract is fair enough to enforce all its basic terms . . . , but not fair enough to enforce its arbitration clause.”7 Much of the recent precedent set by the Supreme Court is censorious of rules the Supreme Court classifies as “categorical” ones, which prohibit outright the arbitration of certain claims. The Supreme Court recently decided, in AT&T Mobility, Inc. v. Concepcion,8 that a state law rendering class-action waivers in arbitration agreements unenforceable when certain criteria were met was invalid because it equated to a blanket rule essentially prohibiting all arbitration clauses purporting to govern a particular type of claim.9
In making its ruling in Concepcion, the Supreme Court emphasized that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”10 The Supreme Court noted that “[a]lthough § 2’s savings clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.”11 Concepcion reinforced that “[t]he ‘principal purpose’ of the FAA is to ‘ensur[e] that private arbitration agreements are enforced according to their terms.’”12 The Supreme Court emphatically pointed out that its cases not only “place it beyond dispute that the FAA was designed to promote arbitration,”13 but further that they “have repeatedly described the Act as ‘embod[ying] [a] national policy favoring arbitration’, and ‘a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.’”14
During the same time that the Supreme Court was rendering its decision in Concepcion, the WVSCA was deciding Brown v. Genesis Healthcare Corp.15 Despite their concurrence, the decisions in Brown and Concepcion were marked by several fundamental differences. In Brown, the WVSCA applied a limited interpretation of the FAA and found that arbitration clauses in nursing home admission agreements adopted prior to an occurrence of negligence causing the injury or wrongful death of the patient were unenforceable in a dispute concerning the negligence.16 In making its finding in Brown, the WVSCA found that the FAA did not apply to compel arbitration of claims for personal injury or wrongful death in suits that only “collaterally derive[d] from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involve[d] a service that is a practical necessity for members of the public.”17
In Brown, the plaintiffs argued that the arbitration clauses at issue were unenforceable because they violated Section 15(c) of the West Virginia Nursing Home Act, which “creates a cause of action for violations of the Act’s requirements, and prohibits waivers of the right to bring an action.”18 The plaintiffs argued that the arbitration clauses at issue were “nothing more than a written contractual requirement that a nursing home resident [ . . . ] waive the resident’s right to commence an action in circuit court” and, as a result, were void as contrary to public policy under Section 15(c) of the Nursing Home Act.19 The plaintiffs urged the WVSCA to adopt a rule essentially stating that all arbitration clauses in nursing home agreements were per se unconscionable and, therefore, unenforceable.20 The defendants in Brown countered with the argument that Section 15(c) of the Nursing Home Act was preempted by Section 2 of the FAA.21
The WVSCA declined to accept the plaintiffs’ argument on the per se unconscionability of the agreements and agreed with the defendants that Section 15(c), to some degree, was preempted by the FAA. However, the WVSCA ruled that, “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”22 In doing so, the WVSCA noted its belief that “Congress did not intend for arbitration agreements, adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, and which require questions about the negligence to be submitted to arbitration, to be governed by the FAA.”23
The defendants appealed the Brown decision to the Supreme Court of the United States, arguing that the WVSCA misinterpreted the preemptive scope of the FAA and thus erred when determining that Congress did not intend for the FAA to apply to the arbitration provisions at issue.24 In Marmet Health Care Ctr., Inc. v. Brown, the Supreme Court vacated the WVSCA’s ruling in Brown that a pre-injury arbitration agreement violated public policy.25 The Supreme Court found the WVSCA’s rule in Brown to be a “categorical” one “prohibiting arbitration of a particular type of claim.”26 The Supreme Court stated in Marmet that such a blanket rule is the very kind of rule that is “displaced by the FAA,” citing its recent reiteration of this concept in Concepcion.27 The Supreme Court found that the WVSCA’s ruling in Brown carved out an exception to the FAA’s broad-sweeping application where one does not, in fact, exist; stating, “[the FAA’s] text includes no exception for personal-injury or wrongful-death claims.”28
While Marmet vacated Brown to the extent it invalidated the arbitration provisions at issue due to conflicting state public policy, there were various points of law enumerated in Brown that were unaffected by the Supreme Court’s decision. For instance, in Brown, the WVSCA confirmed the supremacy of the FAA over state laws that would frustrate the Congressional intent in enacting the FAA.29 The WVSCA pointed out that to the extent Section 15(c) of the West Virginia Nursing Home Act specifically targeted arbitration clauses in contracts evidencing transactions affecting interstate commerce in order to nullify those clauses, the statute was preempted by the FAA.30 In its decision, the WVSCA specifically acknowledged that it “recognize[s] that a rule of state law disfavoring arbitration for a class of interstate commercial transactions is preempted by the FAA.”31 The WVSCA also offered an alternate explanation in Brown for the unenforceability of the arbitration provisions at issue, reasoning that the provisions were unconscionable (both procedurally and substantively), and thus, invalid.32 Based upon this alternate theory, the Supreme Court remanded the case to the WVSCA, stating that “[o]n remand, the West Virginia court must consider whether, absent that general public policy, the arbitration clauses in [Brown] are unenforceable under state common law principles that are not specific to arbitration and pre-empted by the FAA.”33
In the wake of Concepcion and Marmet, the WVSCA is once again charged with deciding whether to enforce the arbitration provisions that were at issue in Brown. The question that remains is whether the WVSCA, without considering the state public policy in West Virginia, will once again invalidate the arbitration provisions or whether it will uphold their enforcement, compelling the parties to arbitration. The WVSCA’s decision is one of particular importance in the upcoming months, as it is likely to affect (or perhaps be affected by) other issues currently before it. Beyond its pending decision in Brown, the WVSCA is also currently deciding the issue of whether the anti-waiver provision in the West Virginia Consumer Credit and Protection Act, W. Va. Code § 46A-1-101 et seq., interpreted by the lower court as a ban on arbitration agreements limiting a consumer’s right to litigate claims under the WVCCPA, is preempted by the FAA.34 The issues currently before the WVSCA on arbitration provisions are certainly related to, and will be affected by, the Supreme Court’s recent decision in Marmet. How will those issues be decided post-Marmet? The answer to that question, for now, lies only with the WVSCA.
19 U.S.C. § 1 et seq.
2See e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (the Federal Arbitration Act “reflects an emphatic federal policy in favor of arbitral dispute resolution.”).
3Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. ---, 132 S. Ct. 1201, Nos. 11-391 and 11-394, 2012 U.S. LEXIS 1076 (Feb. 21, 2012), Slip Op.
49 U.S.C. § 2; see Syl. pt. 6, Brown v. Genesis Healthcare Corp., --- W. Va. ---, Nos. 35494, 35546, 35635, 2011 W. Va. LEXIS 61 (W. Va. June 29, 2011), Slip Op., vacated sub nom. Marmet, Nos. 11-391 and 11-394, 2012 U.S. LEXIS 1076, Slip Op.
59 U.S.C. § 2.
6See Rent-a-Center, W., Inc. v. Jackson, --- U.S. ---, 130 S. Ct. 2772, 2776 (2010) (“The FAA thereby places arbitration agreements on equal footing with other contracts”); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S. Ct. 1204, 1207 (2006) (same).
7Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S. Ct. 1652, 1655 (1996); Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 271, 115 S. Ct. 834, 838 (1995) (citing Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852 (1984)) (same); Volt Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S. Ct. 1248, 1253 (1989) (same).
8563 U.S. ---, 131 S. Ct. 1740 (2011).
9Concepcion, 131 S. Ct. at 1745, 1748-52. The lower court had rendered a decision effectively prohibiting any and all class action waivers in consumer arbitration agreements as unconscionable, provided certain conditions were met. See Discover Bank v. Superior Court, 113 P.3d 1100 (Ca. 2005).
10Concepcion at 1747 (citing Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978 (2008) (“when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA”).
11Id. at 1748.
12Id. at 1748 (citing Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 478 (1989)).
13Id. at 1749.
14Id. (citing Buckeye Check Cashing, Inc., 546 U.S. at 443; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
15Brown, 2011 W. Va. LEXIS 61. The portion of Section 15(c) at issue in Brown reads: “Any waiver by a resident or his or her legal representative of the right to commence an action under this section, whether oral or in writing, shall be null and void as contrary to public policy. Id. at 113; W. Va. Code § 16-5C-15.
16Brown, 2011 W. Va. LEXIS at 113.
172011 W. Va. LEXIS at 112.
18Id. at 104-05.
192011 W. Va. LEXIS at 46.
20Id. at 104-05.
21Id. at 46.
22Id. at 113.
23Id. at 112.
24See Marmet, Nos. 11-391 and 11-394, 2012 U.S. LEXIS 1076, Slip Op.
25Marmet at Slip Op. 1, 3-4.
26Id. at Slip Op. 4.
27Id. at Slip Op. 3-4 (stating “[a]s this Court reaffirmed last Term, ‘[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.’ That rule resolves these cases [referring to Brown].”)
28Id. at Slip Op. 3.
29See Id. at Slip Op. 46-49.
302011 W. Va. LEXIS at 79-80.
31Id. at 112.
32Id. at 80-103.
33Marmet at Slip Op. 5.
34See Credit Acceptance Corporation v. Front, No. 11-1646, Petitioner Credit Acceptance Corp.’s Appeal from Final Order of the Cir. Ct. of Raleigh County, Petitioner’s Brief, filed Feb. 21, 2012.