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Rent-A-Center, Inc. v. Ellis

Supreme Court of West Virginia

April 30, 2019

RENT-A-CENTER, INC. and RENT-A-CENTER, EAST, INC., Defendants Below, Petitioners
v.
ANITA ELLIS, Plaintiff Below, Respondent

          Submitted: January 29, 2019

          Appeal from the Circuit Court of Mercer County The Honorable Mark Wills, Judge Civil Action No. 16-C-375

          Richard Wallace, Esq. LITTLER MENDELSON, PC Charleston, West Virginia Edward F. Berbarie, Esq., Pro Hac Vice Robert F. Friedman, Esq., Pro Hac Vice LITTLER MENDELSON, PC Dallas, Texas Counsel for the Petitioners

          Jerome J. McFadden, Esq. Law Offices of Jerome McFadden, PLLC Princeton, West Virginia James D. McQueen, Esq. McQueen Davis, PLLC Huntington, West Virginia Counsel for the Respondent

         SYLLABUS BY THE COURT

         1. "An order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine." Syllabus Point 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." Syllabus Point 1, West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W.Va. 465, 796 S.E.2d 574 (2017).

         3. "A 'delegation provision' is a clause, within an agreement to arbitrate, which clearly and unmistakably provides that the parties to the agreement give to the arbitrator the power to decide the validity, revocability or enforceability of the arbitration agreement under general state contract law." Syllabus Point 4, Schumacher Homes of Circleville, Inc. v. Spencer, 237 W.Va. 379');">237 W.Va. 379, 787 S.E.2d 650 (2016).

         4. "Under the Federal Arbitration Act, 9 U.S.C. § 2, there are two prerequisites for a delegation provision to be effective. First, the language of the delegation provision must reflect a clear and unmistakable intent by the parties to delegate state contract law questions about the validity, revocability, or enforceability of the arbitration agreement to an arbitrator. Second, the delegation provision must itself be valid, irrevocable and enforceable under general principles of state contract law." Syllabus Point 7, Schumacher Homes of Circleville, Inc. v. Spencer, 237 W.Va. 379');">237 W.Va. 379, 787 S.E.2d 650 (2016).

         5. "Under the Federal Arbitration Act, 9 U.S.C. § 2, and the doctrine of severability, where a delegation provision in a written arbitration agreement gives to an arbitrator the authority to determine whether the arbitration agreement is valid, irrevocable or enforceable under general principles of state contract law, a trial court is precluded from deciding a party's challenge to the arbitration agreement. When an arbitration agreement contains a delegation provision, the trial court must first consider a challenge, under general principles of state law applicable to all contracts, that is directed at the validity, revocability or enforceability of the delegation provision itself." Syllabus Point 5, Schumacher Homes of Circleville, Inc. v. Spencer, 237 W.Va. 379');">237 W.Va. 379, 787 S.E.2d 650 (2016).

         6. "The doctrine of unconscionability means that, because of an overall and gross imbalance, one-sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce the contract as written. The concept of unconscionability must be applied in a flexible manner, taking into consideration all of the facts and circumstances of a particular case." Syllabus Point 12, Brown v. Genesis Healthcare Corp., 228 W.Va. 646');">228 W.Va. 646, 724 S.E.2d 250 (2011).

         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');">228 W.Va. 646, 724 S.E.2d 250 (2011).

         8. "The omission of an 'opt out' provision in an agreement that permits the signatories to reject arbitration is just one of multiple factors to consider in evaluating a claim of procedural unconscionability. As a result, the omission of an 'opt out' provision is not in itself sufficient evidence that an arbitration agreement is grossly unfair and thus unenforceable on grounds of procedural unconscionability." Syllabus Point 2, Nationstar Mortg., LLC v. West, 237 W.Va. 84');">237 W.Va. 84, 785 S.E.2d 634 (2016).

          WALKER, CHIEF JUSTICE:

         After Respondent Anita Ellis was terminated from employment, she filed workers' compensation discrimination claims against Petitioners Rent-A-Center, Inc. and Rent-A-Center East, Inc. Relying on the arbitration agreement that Respondent signed at the time she was hired, Petitioners moved to compel arbitration. Respondent challenged the arbitration agreement's delegation clause, which required that any challenge to the interpretation, applicability, enforceability or formation of the agreement be resolved by the arbitrator and not any court, on the grounds that it was ambiguous, unconscionable and in violation of West Virginia Code § 23-2-7 (2017). The circuit court found the delegation clause unconscionable and refused to enforce the arbitration agreement. On appeal, Petitioners contend that the delegation clause should have been enforced and the matter sent to arbitration. Because the delegation clause was neither unconscionable nor unenforceable, we reverse the circuit court and remand this case for an order compelling arbitration.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         When Respondent was hired by Petitioners in March of 2011 as an assistant manager, she signed a "Mutual Agreement to Arbitrate Claims" (arbitration agreement). The agreement states that it is governed by the Federal Arbitration Act (FAA), that it applies mutually to both parties, and that the mutual obligation to arbitrate differences "[p]rovide[s] consideration for each other." The arbitration agreement includes a "Claims Covered by the Agreement" section that states:

The Company and I mutually consent to the resolution by arbitration of all claims or controversies ("claims"), past, present or future, including without limitation, claims arising out of my application for employment, assignment/employment, and/or the termination of my assignment/employment
. . . .
. . . The claims covered by this Agreement include, but are not limited to: . . . tort or statutory claims for discrimination (including, but not limited to, . . . workers' compensation); . . . and claims for violation of any federal, state or other governmental law, statute, regulation, or ordinance . . . .

         Under the "Arbitration Procedures" section, the agreement includes the following delegation clause:

The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or part of this Agreement is void or voidable.

         Just above the Respondent's signature line on the agreement, the following appears in bold, capitalized letters:

I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT; THAT I UNDERSTAND ITS TERMS; THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT; AND THAT I HAVE ENTERED INTO THE AGREEMENT NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY THE COMPANY OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT BY SIGNING THIS AGREEMENT THE COMPANY AND I ARE GIVING UP OUR RIGHTS TO A JURY TRIAL AND THAT PURSUANT TO THE TERMS OF THIS AGREEMENT, I AM AGREEING TO ARBITRATE CLAIMS COVERED BY THIS AGREEMENT.
I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT THAT I WISH TO DO SO.

         On April 8, 2014, Respondent injured her right shoulder while moving a refrigerator at work. She filed a workers' compensation claim and received temporary total disability (TTD) benefits for the period April 23, 2014, through May 15, 2014. By letter dated November 28, 2014, Petitioners terminated Respondent from employment effective November 11, 2014. The stated reason for termination was Respondent's absences from work.

         On October 8, 2015, Respondent sought to re-open her workers' compensation claim. She was awarded TTD benefits for the period of May 19, 2014, through December 17, 2014. Respondent then filed a complaint in the Circuit Court of Mercer County in which she alleged that Petitioners unlawfully terminated her while she was off work due to a compensable injury and for which she received or was eligible to receive TTD benefits in violation of West Virginia Code §§ 23-5A-1 and -3(a) (2017).

         Petitioners filed a motion to dismiss or stay the case and compel arbitration arguing that Respondent's claim is covered under the arbitration agreement. Petitioners further argued that, to the extent Respondent challenges the enforceability or applicability of the arbitration agreement, the agreement's delegation clause requires that those challenges be decided by the arbitrator and not the circuit court.

         Respondent opposed Petitioners' motion to compel on three grounds. First, Respondent argued that the delegation clause was ambiguous and failed to reflect an unmistakable intent by the parties to delegate to the arbitrator the determination of gateway issues of arbitrability. Second, Respondent asserted that the delegation clause was unconscionable under West Virginia common law contract principles. Third, Respondent alleged that the delegation clause is invalid because it violates West Virginia Code § 23-2-7, which provides that "[n]o employer or employee shall exempt himself from the burden or waive the benefits of [the workers compensation statute] by any contract, agreement, rule or regulation, and any such contract, agreement, rule or regulation shall be pro tanto void."

         In an order entered June 22, 2017, the circuit court denied Petitioners' motion to compel. The court determined that the arbitration agreement was both procedurally and substantively unconscionable and that there was no mutual agreement to arbitrate. In finding that the arbitration agreement was procedurally unconscionable, the circuit court placed significance on the fact that the arbitration provision was a non-negotiable term in an adhesion contract, and the Respondent was not permitted to opt out of or alter the provision. The circuit court also noted that the Respondent did not have the same level of sophistication or understanding about the arbitration clause as the Petitioners' attorneys who drafted the language, and found that she likely had no meaningful opportunity to seek counsel.

         In finding substantive unconscionability, the circuit court determined that the agreement substantially impaired a plaintiff's right to pursue remedies for their losses such as a class action suit, which was expressly waived in the agreement, and that it would deprive the Respondent of a statutory remedy that exists to benefit and protect workers that have the claims set forth in West Virginia Code § 23-5A-3. The circuit court also concluded that there was a lack of a real and voluntary meeting of the minds, there was an overall imbalance and one-sidedness to the agreement, and there was no real choice or bargaining on the part of the Respondent, as her only alternative to signing the agreement was not taking the job. Further, it found that the consideration for the agreement "that both parties agree to arbitrate," was an "illusory promise" and was therefore inadequate. This appeal followed.

         II. STANDARD OF REVIEW

         Petitioners appeal the circuit court's denial of its motion to compel arbitration and to dismiss. This Court has held previously 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."[1] We have also held that "[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."[2] Further, "we apply a de novo standard of review to [a] circuit court's interpretation of [a] contract."[3] Applying this standard, we proceed to determine whether the circuit court committed error in refusing to refer the underlying matter to arbitration.

         III. ANALYSIS

         The parties assert various assignments and cross-assignments of error, all of which pertain to one central issue-whether the delegation clause in the arbitration agreement between the parties should have been enforced. Petitioners assert that the circuit court erred in denying their motion to compel arbitration because the delegation clause clearly assigns the arbitrator "the exclusive authority to resolve any dispute relating to the . . . applicability, enforceability, or formation of . . . the arbitration agreement." Petitioners contend that in Rent-A-Center, West, Inc. v. Jackson, [4] the United States Supreme Court enforced the identical delegation clause and found that it clearly delegated the gateway issues of arbitrability to the arbitrator. Thus, Petitioners contend the FAA mandates that an arbitrator and not the circuit court should have determined whether the arbitration agreement is unenforceable.[5]

         Reiterating the arguments she made below, Respondent asserts that the delegation clause is (1) ambiguous and fails to reflect an unmistakable intent to delegate to the arbitrator the determination of gateway issues of arbitrability; (2) unconscionable under West Virginia common law contract principles; and (3) invalid because it violates West Virginia Code § 23-2-7. Before we consider the parties' arguments, we set forth the legal framework that controls the arbitration agreement and delegation clause at issue.

         A. Delegation of Arbitrability

         As the United States Supreme Court has explained, "[p]arties can agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy."[6] This can be accomplished by a specific term in the arbitration agreement, known as a delegation provision. As we have held, "[a] 'delegation provision' is a clause, within an agreement to arbitrate, which clearly and unmistakably provides that the parties to the agreement give to the arbitrator the power to decide the validity, revocability or enforceability of the arbitration agreement under general state contract law."[7]

         In discussing delegation provisions, we have described their purely contractual nature:

The way that courts treat a delegation provision within an arbitration agreement should reflect the principle that arbitration is purely a matter of contract. In their contract, the parties may agree that questions about the validity, revocability or enforceability of an arbitration agreement under state contract law will be delegated from a court to an arbitrator. "Because the parties are the masters of their collective fate, they can agree to arbitrate almost any dispute-even a dispute over whether the underlying dispute is subject to arbitration."[8]

         In considering a challenge to the same arbitration agreement we examine in this case, the United States Supreme Court discussed how the severability doctrine applies to delegation provisions in Rent-A-Center, West. In that case, Jackson filed an employment-discrimination suit against Rent-A-Center in a Nevada federal court. Rent-A-Center filed a motion to dismiss or stay the proceedings and to compel arbitration based on the arbitration agreement Jackson signed as a condition of his employment.[9] Rent-A-Center asserted that the arbitration agreement had a provision delegating to the arbitrator, "exclusive authority to resolve any dispute relating to . . . the enforceability" of the arbitration agreement.[10] In response, Jackson contended that the arbitration agreement was unenforceable because it was unconscionable under state law.[11] Importantly, Jackson did not challenge the delegation provision separate from the arbitration agreement. The district court agreed with Rent-A-Center and compelled arbitration.[12] On appeal, the Ninth Circuit reversed, holding that where "a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court."[13]

         In reversing the Ninth Circuit, the Supreme Court severed the delegation provision from the remainder of the arbitration agreement and explained that, unless Jackson challenged the delegation provision specifically, it must be treated as valid and must be enforced, leaving any challenge to the to the validity of the arbitration agreement as a whole for the arbitrator.[14] It concluded that Jackson had only challenged the validity of the contract as a whole because he raised a challenge to the delegation provision for the first time in his appeal to the Supreme Court, which the Court determined was too late and would not be considered.[15] However, the high court went on to illustrate how Jackson could have argued that the delegation provision, as opposed to the arbitration agreement as a whole, was "unconscionable"-and therefore unenforceable-because of the limitations on arbitral discovery and the fee-splitting procedures. It reasoned:

Jackson's other two substantive unconscionability arguments assailed arbitration procedures called for by the contract-the fee-splitting arrangement and the limitations on discovery-procedures that were to be used during arbitration under both the agreement to arbitrate employment-related disputes and the delegation provision. It may be that had Jackson challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court. To make such a claim based on the discovery procedures, Jackson would have had to argue that the limitation upon the number of depositions causes the arbitration of his claim that the [arbitration] Agreement is unenforceable to be unconscionable. That would be, of course, a much more difficult argument to sustain than the argument that the same limitation renders arbitration of his factbound employment-discrimination claim unconscionable. Likewise, the unfairness of the fee-splitting arrangement may be more difficult to establish for the arbitration of enforceability than for arbitration of more complex and fact-related aspects of the alleged employment discrimination. Jackson, however, did not make any arguments specific to the delegation provision; he argued that the fee-sharing and discovery procedures rendered the entire Agreement invalid.[16]

         We examined the Rent-A-Center, West holding in Schumacher Homes of Circleville, Inc. v. Spencer (Schumacher Homes II), [17] and held that delegation clauses will be enforced if there is a "clear and unmistakable intent" to delegate these gateway issues to the arbitrator, and if the delegation provision is valid and enforceable under general principles of state contract law.[18] In Schumacher Homes II, the petitioner argued that the arbitration agreement delegated questions regarding unconscionability to the arbitrator for resolution. The arbitration clause in the contract in that case stated, "that any claim, dispute or cause of action, of any nature . . . shall be subject to final and binding arbitration by an arbitrator[.]"[19] The arbitration clause also included language that Schumacher contended was a delegation provision, stating, "[t]he arbitrator(s) shall determine all issues regarding the arbitrability of the dispute." Nowhere in the contract was the term "arbitrability" defined for the parties.[20]

         Applying Rent-A-Center, West, we determined in Schumacher Homes II that because a delegation provision is a mini-arbitration agreement divisible from both the broader arbitration clause and the even broader contract in which the delegation provision and arbitration clause are found, a party must specifically object to the delegation provision in order for a court to consider the challenge.[21] A party resisting delegation to an arbitrator of any question about the enforceability of an arbitration agreement must specifically challenge the delegation provision first.[22] To that end, we held that:

Under the Federal Arbitration Act, 9 U.S.C. § 2, and the doctrine of severability, where a delegation provision in a written arbitration agreement gives to an arbitrator the authority to determine whether the arbitration agreement is valid, irrevocable or enforceable under general principles of state contract law, a trial court is precluded from deciding a party's challenge to the arbitration agreement. When an arbitration agreement contains a delegation provision, the trial court must first consider a challenge, under general principles of state law applicable to all contracts, that is directed at the validity, revocability or enforceability of the delegation provision itself.[23]

         We also explained the practical effect of this holding:

[u]nder this rule, if the trial court finds the delegation provision to be effective, then the case must be referred to the parties' arbitrator who can then decide if the arbitration agreement is invalid, revocable or unenforceable. Conversely, if the delegation provision is ineffective on a ground that exists at law or in equity for the revocation of any contract, then the trial court may examine a challenge to the arbitration agreement.[24]

         Similar to the facts presented in Rent-A-Center, West, the home buyer in Schumacher II never specifically challenged the delegation language before the circuit court or this Court. So, we held that the home buyer waived any right to challenge the delegation language and we remanded the case to the circuit court and directed that the parties' dispute regarding the validity, revocability, or enforceability of the arbitration agreement be referred to arbitration.[25]

         B. Challenging the Delegation Clause

         Although we acknowledged that the rule created by the Supreme Court in Rent-A-Center, West seemed to be "intricate and complex," we made it clear in Schumacher Homes II that it is possible to oppose enforcement of a delegation provision. As we cautioned, "the FAA does not require all claims to be sent to arbitration merely because there is a delegation provision."[26] Because delegation clauses and "agreements to arbitrate are severable does not mean that they are unassailable."[27]

         (1) Clear and Unmistakable Intent

         In determining whether the delegation clause in this case is enforceable, we must first discern whether the language of the delegation provision reflects "a clear and unmistakable intent by the parties to delegate state contract law questions about the validity, revocability and enforceability of the arbitration agreement to an arbitrator."[28] As we explained in Schumacher Homes II, "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clear and unmistakable' evidence that they did so."[29] "Parties are only bound to arbitrate those issues that by clear and unmistakable writing they have agreed to arbitrate," and an "agreement to arbitrate will not be extended by construction or implication."[30] The "clear and unmistakable" test reflects a "heightened standard" of proof of the parties' "manifestation of intent."[31] This heightened standard was adopted

because the question of who would decide the unconscionability of an arbitration provision is not one that the parties would likely focus upon in contracting, and the default expectancy is that the court would decide the matter. Thus, the Supreme Court has decreed, a contract's silence or ambiguity about the arbitrator's power in ...

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