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Hampden Coal, LLC v. Varney

Supreme Court of West Virginia

February 16, 2018

HAMPDEN COAL, LLC, AND OLIVER HUNT, Defendants Below, Petitioners
v.
MICHAEL R. VARNEY, Plaintiff Below, Respondent

          Submitted: January 9, 2018

         Appeal from the Circuit Court of Mingo County Honorable Darrell Pratt, Judge (sitting by special assignment) Civil Action No. 16-C-113

          Ashley C. Pack, Esq. Jennifer J. Hicks, Esq. Dinsmore & Shohl PLLC Charleston, West Virginia Counsel for Petitioners

          Nathan Brown, Esq. Ferrell & Brown, PLLC Williamson, West Virginia Counsel for Respondent

         SYLLABUS

         1. "An 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 (2013).

         2. "When an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo." Syl. Pt. 1, W.Va. CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W.Va. 465, 796 S.E.2d 574 (2017).

         3. "When a trial court is required to rule upon a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-307 (2006), 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, State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (2010).

         4. "'Under the Federal Arbitration Act, 9 U.S.C. § 2, a written provision to settle by arbitration a controversy arising out of a contract that evidences a transaction affecting interstate commerce is valid, irrevocable, and enforceable, unless the provision is found to be invalid, revocable or unenforceable upon a ground that exists at law or in equity for the revocation of any contract.' Syllabus Point 6, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011)." Syl. Pt. 1, Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012).

         5. "'A contract term is unenforceable if it is both procedurally and substantively unconscionable. However, both need not be present to the same degree. Courts should apply a "sliding scale" in making this determination: the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the clause is unenforceable, and vice versa.' Syllabus Point 20, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011)." Syl. Pt. 9, Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012).

         6. "'Substantive unconscionability involves unfairness in the contract itself and whether a contract term is one-sided and will have an overly harsh effect on the disadvantaged party. The factors to be weighed in assessing substantive unconscionability vary with the content of the agreement. Generally, courts should consider the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and public policy concerns.' Syllabus Point 19, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011)." Syl. Pt. 12, Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012).

          7."'Procedural unconscionability is concerned with inequities, improprieties, or unfairness in the bargaining process and formation of the contract. Procedural unconscionability involves a variety of inadequacies that results in the lack of a real and voluntary meeting of the minds of the parties, considering all the circumstances surrounding the transaction. These inadequacies include, but are not limited to, the age, literacy, or lack of sophistication of a party; hidden or unduly complex contract terms; the adhesive nature of the contract; and the manner and setting in which the contract was formed, including whether each party had a reasonable opportunity to understand the terms of the contract.' Syllabus Point 17, Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011)." Syl. Pt. 10, Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012).

         8. "When a written contract is clear and unambiguous its meaning and legal effect must be determined solely from its contents and it will be given full force and effect according to its plain terms and provisions." Syl. Pt. 3, in part, Kanawha Banking & Trust Co. v. Gilbert, 131 W.Va. 88, 46 S.E.2d 225 (1947).

          LOUGHRY CHIEF JUSTICE

         Hampden Coal, LLC and Oliver Hunt (defendants below; collectively "the petitioners"), appeal the Circuit Court of Mingo County's order entered on December 29, 2016, through which it denied their motion to dismiss and compel arbitration in this action brought by the respondent (plaintiff below), Michael R. Varney, alleging a deliberate intent claim[1] and violations of the West Virginia Human Rights Act.[2] The petitioners assign error in the circuit court's ruling that the parties' arbitration agreement was unconscionable and lacked consideration and that Mr. Varney's claims fell outside the scope of that agreement. Upon our review of the parties' briefs, the arguments of counsel, the appendix record submitted, and the applicable law, we reverse the circuit court's rulings and remand this action to the circuit court for entry of an order dismissing this civil action and compelling arbitration.

         I. Facts and Procedural Background

         In 2000, Mr. Varney began working for Hampden Coal Company, LLC. The assets of Hampden Coal Company, LLC were purchased by the petitioner, Hampden Coal, LLC ("Hampden Coal") in August of 2014, after which employees were transitioned to Hampden Coal. Mr. Varney's employment with Hampden Coal, as well as that of all employees, was conditioned upon him signing a Mutual Arbitration Agreement ("Agreement"). Through this one and one-half-page Agreement, which the parties signed on September 3, 2014, Hampden Coal and Mr. Varney jointly consented

to submit all past, present or future disputes that arise between us to final and binding arbitration. This means that a neutral arbitrator will decide any legal dispute between us, instead of a judge or jury. The Federal Arbitration Act and the American Arbitration Association's ("AAA") National Rules for the Resolution of Employment Disputes, then in effect, [3] govern arbitrations under this Agreement. Hampden Coal and I waive our right to go to court in exchange for this right to arbitration.

         (Footnote added). This Agreement further records the parties' mutual assent to arbitrate

all disputes or claims of any kind includ[ing] but [] not limited to claims of unlawful discrimination, retaliation or harassment based upon race, national origin, ancestry, disability, religion, sex, age, workers' compensation claims or history, veteran's status, or any other unlawful reason, and all other claims relating to employment or termination from employment. This shall also include claims for wages or other compensation due, claims for breach of any contract, tort claims or claims based on public policy. This Agreement does not, however, limit any right to file a charge with or assist any government agency, including the EEOC and the NLRB, or the right to file a claim for workers' compensation benefits or unemployment insurance compensation; nor does it apply to employment benefit plans regulated by the Employee Retirement Income Security Act.

         The parties also agreed that a claim must be filed for arbitration "within the same time period that they would have to file a lawsuit in court or one-year from the date of the event forming the basis of the lawsuit, whichever expires first. The parties waive any and all limitation periods to the contrary." Consideration for the Agreement is described therein as the parties' mutual promises to arbitrate any disputes between them and Hampden Coal's "employment and continued employment" of Mr. Varney, "as well as, the benefits and compensation provided by Hampden Coal[.]"[4] Above the space indicated for signatures, the Agreement provides in bold lettering: "This Mutual Arbitration Agreement contains legally binding promises. Please seek legal advice, of your choosing, instead of signing this Agreement if you do not understand or have questions about any part of this Agreement."

          On June 21, 2016, Mr. Varney instituted this civil action against Hampden Coal and Oliver Hunt, his supervisor, in the Circuit Court of Mingo County, alleging a deliberate intent claim under West Virginia Code § 23-4-2 related to his workplace injury in January 2016, for which he had been awarded workers' compensation benefits, as well as two violations of the West Virginia Human Rights Act arising out of Hampden Coal's and Mr. Hunt's alleged decision to demote Mr. Varney following an illness that required hospitalization in December 2015.[5] In response to the complaint, the petitioners filed a motion to dismiss or, in the alternative, compel arbitration.

         Following briefing by the parties and a hearing before the circuit court during which the parties presented oral argument only, the circuit court denied the motion. In its order entered on December 29, 2016, the circuit court observed that "[n]either party submitted any affidavits or testimony for the record[, ]" after which it found that the parties' Agreement is an employment contract; that arbitration agreements are viewed differently in an employment context in comparison to a commercial context; that the Agreement is a contract of adhesion; that the language in the Agreement instructing Mr. Varney to seek legal advice if he did not understand or had questions about the Agreement is disingenuous; that the Agreement is invalid because it lacks consideration; that the Agreement is both substantively and procedurally unconscionable; that the deliberate intent claim falls outside the scope of the Agreement, which provides that it "does not limit any right to . . . file a claim for workers' compensation benefits[;]" and that the Human Rights Act claims fall outside the scope of the Agreement which provides that it "does not . . . limit any right to file a charge with or assist any government agency, including the EEOC and the NLRB[.]" This appeal followed.

         II. Standard of Review

         The petitioners challenge the circuit court's denial of their motion to dismiss and compel arbitration. In Credit Acceptance Corporation v. Front, 231 W.Va. 518, 745 S.E.2d 556 (2013), we held that "[a]n order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine." Id. at 519, 745 S.E.2d at 557, syl. pt. 1. Further, "[w]hen an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo." Syl. Pt. 1, W.Va. CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W.Va. 465, 796 S.E.2d 574 (2017). Our review is also plenary to the extent our analysis requires us to examine the circuit court's interpretation of the parties' Agreement. Zimmerer v. Romano, 223 W.Va. 769, 777, 679 S.E.2d 601, 609 (2009) ("[W]e apply a de novo standard of review to [a] circuit court's interpretation of [a] contract."). This matter being properly before this Court, we proceed to determine whether the circuit court erred in refusing to compel arbitration.

         III. Discussion

         We begin by observing that "[w]hen a trial court is required to rule upon a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-307 (2006), 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, State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (2010).[6]Here, the circuit court denied the motion to compel arbitration, finding the parties' Agreement to be invalid and unenforceable, and further finding that Mr. Varney's claims fall outside the scope of the Agreement. The petitioners assign various errors in their challenge to these rulings, each of which we address below.

          A. Whether Arbitration Agreements are viewed differently in an Employment Context

         The petitioners assert that the circuit court cited no legal authority for its erroneous ruling that arbitration agreements are viewed differently in an employment context compared to a commercial context. They emphasize that this Court has routinely enforced arbitration agreements in the employment context under the same standards it applies to any arbitration agreement. Conversely, Mr. Varney argues that the circuit court's ruling was correct. He relies upon Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 729 S.E.2d 217 (2012) ("Brown II"), in which this Court stated that courts "are more likely to find unconscionability in consumer transactions and employment agreements than in contracts arising in purely commercial settings involving experienced parties." Id. at 392-93, 729 S.E.2d at 227-28 (quoting Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 681, 724 S.E.2d 250, 285 (2011) ("Brown I"), overruled in part on other grounds by Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530 (2012) (per curiam)).

         The petitioners are correct in their argument that this Court has never held that more stringent or different standards apply to our consideration of arbitration agreements in different contexts, nor have we ever adopted separate rules or factors for consideration of arbitration agreements in the employment context. Rather, we have generally held that "[p]rocedural unconscionability involves a variety of inadequacies . . . includ[ing], . . . the age, literacy, or lack of sophistication of a party; hidden or unduly complex contract terms; the adhesive nature of the contract; and the manner and setting in which the contract was formed[.]" Brown II, 229 W.Va. at 386, 729 S.E.2d at 221, syl. pt. 10, in part (footnote added).[7] We then explained that a consideration of these factors will more likely lead courts to find unconscionability in consumer transactions and employment agreements in comparison to commercial contracts between experienced parties. Id. at 392-93, 729 S.E.2d at 227-28. In other words, we simply recognized that these factors could lead to differing results depending upon the factual setting giving rise to the contract or agreement. Accordingly, this Court makes clear that we apply the same legal standards to our review of all arbitration agreements.

         B. Consideration and Mutuality

         The petitioners assign error in the circuit court's ruling that the Agreement is unsupported by sufficient consideration "because it was not bargained for and lacks mutuality" in that Hampden Coal "would simply terminate" Mr. Varney's employment if it had a claim against him.[8] They assert that the plain language of the Agreement reflecting the parties' mutual obligation to arbitrate is, alone, sufficient consideration to support the formation of a contract under well-settled law in West Virginia. Arguing further, they state that the circuit court's reasoning is neither supported by any language in the Agreement nor by any other evidence.[9] Regarding the scrivener's error in the "Consideration" paragraph of the Agreement referencing "Blue Diamond, " the petitioners argue this error does not diminish the consideration for the Agreement because the parties always intended the Agreement to be between Hampden Coal and Mr. Varney; Mr. Varney was fully aware that he was employed by Hampden Coal and not Blue Diamond; and the error was corrected through the Addendum that the parties signed. Lastly, the petitioners assert that even without the Addendum, the Agreement remains supported by the valuable consideration of the parties' mutual promises to arbitrate.

         Correctly observing that consideration is a key component of any contract, Mr. Varney counters that the stated consideration in the Agreement is his "employment and continued employment" with "Blue Diamond" and, because he has never been employed by Blue Diamond, the Agreement is invalid for lack of consideration. Although he apparently agreed below that the reference to Blue Diamond was merely a typographical error that was corrected through the Addendum, [10] he now argues that there cannot be a subsequent modification of a contract without additional consideration.[11] He contends that he was required to sign the Addendum to remain employed, but that continued employment was already promised to him when he signed the Agreement, and that promising to perform what a party is already bound to do is insufficient consideration.

         We agree with the petitioners that a mutual agreement to arbitrate is sufficient consideration to support an arbitration agreement. In Toney v. EQT Corp., No. 13-1011, 2014 WL 2681091 (W.Va. June 13, 2014) (memorandum decision), we addressed whether an arbitration agreement was supported by adequate consideration. We concluded that "the mutual commitments to arbitrate alone constitute sufficient consideration to support the contract." Id. at *3; see also Citizens Telecomms. Co. of W.Va. v. Sheridan, 239 W.Va. 67, __, 799 S.E.2d 144, 152 (2017) (relying upon Toney and ruling that "the mutual commitment to arbitrate is sufficient consideration for the modification" of contract that added arbitration provision). Our ruling in Toney was also recognized in Evans v. TRG Customer Solutions, Inc., No. 2:14-00663, 2014 WL 12659420 (S.D. W.Va. July 29, 2014), wherein the district court stated that "[u]nder West Virginia law, a mutual agreement between an employer and employee to arbitrate their claims establishes adequate consideration." Id. at *4. Other jurisdictions are in agreement. See, e.g., Lizalde v. Vista Quality Mkts., 746 F.3d 222, 225 (5th Cir. 2014) ("As it relates specifically to arbitration agreements, the '[m]utual agreement to arbitrate claims provides sufficient consideration to support an arbitration agreement.' In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010)."); Uszak v. AT & T Mobility Servs. LLC, 658 Fed.App'x 758, 763 (6th Cir. 2016) ("A mutual agreement by both parties to submit a claim to arbitration is sufficient consideration under Ohio law.").

         Although Mr. Varney argues that the sole purpose of the Addendum was to alter the consideration for the Agreement, it is abundantly clear to this Court that the function of the Addendum was to correct the scrivener's error that referenced "Blue Diamond" in the Consideration paragraph of the Agreement. As indicated above, the circuit court stated in its order that the reference to Blue Diamond was a typographical error that was corrected through an addendum.[12] The parties were clearly aware at the time the Agreement was signed that Hampden Coal was ...


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