The plaintiffs entered into a contract with the defendant, Bastian Homes, for the construction of a new home in Fairmont, West Virginia. The contract contained a clause requiring any disputes to be decided by arbitration.
Bastian hired a subcontractor, Dwire Plumbing, to perform the plumbing work. The plaintiffs allege that, during the construction phase there was a water leak that caused substantial damage to the home and delayed completion of the home by ten months. The plaintiffs sued both Bastian Homes and Dwire Plumbing in the Circuit Court of Marion County. Bastian Homes moved to dismiss, citing the arbitration clause in the construction contract.
The plaintiffs argued that, under Board of Education vs. W. Harley Miller, Inc., 160 W.Va. 473, 236 S.E.2d 439 (1977)(known as Harley Miller II), an arbitration clause had to separately “bargained for.” The trial court, however, found that the plaintiff had not offered sufficient proof “for overcoming the general presumption that all arbitration provisions are bargained for.” The plaintiffs also argued that the arbitration clause was unconscionable and, therefore, unenforceable. The trial court disagreed, but failed to make specific factual findings.
(1) Is the requirement that an arbitration clause must be separately "bargained for, as stated in Board of Education vs. W. Harley Miller, Inc., 160 W.Va. 473, 236 S.E.2d 439 (1977), is still good law?
(2) Do the facts supported the trial court's finding that the arbitration clause was not unconscionable?
The Supreme Court took this opportunity to make it clear to the bench and bar that Harley Miller II was no longer good law.
Under Harley Miller II, arbitration clauses could not be enforced unless they were separately “bargained for.” But, importantly, this case was written “without the benefit of and guidance set forth in United States Supreme Court opinionsthat followed…and addressed the applicability of the Federal Arbitration Act (FAA) 9 United States Code Annotated §§1 to 16 (West 2009), to arbitration agreements.” See generally State ex rel Richmond American Homes of West Virginia, Inc. vs. Sanders, 228 W.Va. 125, 717 S.E.2d 909 (2011). The “bargained for” issue was specifically addressed in Dan Ryan Builders, Inc. vs. Nelson, 230 W.Va. 281, 737 S.E.2d 550 (2012). Having reviewed the federal case law, Nelson held, in part, that “[s]o long as the overall contract is supported by sufficient consideration, there is no requirement of consideration for each promise within the contract.” However, Nelson did not expressly overrule or modify Harley Miller II. To eliminate any further confusion regarding the “bargained for” issue, the Supreme Court adopted a new syllabus:
"The law enunciated in syllabus point six of Dan Ryan Builders, Inc. v. Nelson, 230 W.Va. 281, 737 S.E.2d 550 (2012), that “the formation of a contract with multiple clauses only requires consideration for the entire contract, and not for each individual clause” modified the law set forth in Board of Education v. W. Harley Miller, Inc., 160 W.Va. 473, 236 S.E.2d 439 (1977), to the extent that an arbitration clause in a contract need not be specifically 'bargained for.'"
Thus, the trial court reached a right result for the wrong reason. Because the arbitration clause was, in fact, supported by sufficient consideration, this part of the trial court’s ruling was affirmed.
The trial court’s ruling regarding unconscionability received greater scrutiny. The trial court approached this issue in very generic terms without any discussion of the facts surrounding the transaction. The Supreme Court cited Brown vs. Genesis Health Care Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012), and noted that “[a] circuit court’s determination of unconscionability necessarily involves a fact-intensive analysis into a range of factors.” In this particular case, the trial court resolved the unconscionability issue “without the issue being fairly argued by the parties and without any factual development.” Accordingly, the case was remanded to develop a more complete factual record.
Justice Ketchum provided a long list of factors appearing in the contact which, taken together, could support a conclusion that the arbitration agreement was unconscionable. For example, he referenced language in the contract authorizing the contractor to appear for the owner and confess judgment in any court—all without giving notice to the owner. Also cited were venue and choice-of-arbitrator provisions favoring the contractor and a requirement for the owner to escrow the full amount of any amounts in dispute.
From a practical standpoint, this case is actually more significant for the unconscionability ruling. The Supreme Court made it clear that the issue of uconscionability is fact-driven and that a full development of the facts is essential. Two conclusions can be drawn. First, the parties should be permitted to engage in discovery relating to the transaction and the unconscionability factors. Second, the trial court should not resolve any unconscionability claim unless it is satisfied that the factual record is full and complete. This case is a clear indicator that the Supreme Court will not review unconscionability claims unless they have been fully developed and will order a remand, if necessary, to insure a fully developed record.