For banking executives and in-house counsel, arbitration can be a preferable alternative to litigation to avoid costly trials and home-town advantages. In this article, we highlight four recent court decisions that affect the way arbitration clauses are enforced. In June, the West Virginia Supreme Court of Appeals issued three decisions that bolster a defendant’s ability to enforce valid arbitration clauses. An additional opinion favoring enforcement of arbitration was issued by the United States Supreme Court.
Credit Acceptance Corporation v. Front, Nos. 11-1646, 12-0545 (W. Va. June 19, 2013).
In Credit Acceptance Corporation v. Front, the West Virginia Supreme Court of Appeals held for the first time that an order denying a motion to compel arbitration is an interlocutory ruling that may be immediately appealed under the collateral order doctrine. Prior to this decision, a court’s refusal to enforce an agreement to arbitrate at the outset of litigation was not appealable until the end of the case, effectively eliminating a defendant’s ability to challenge the court’s adverse decision.
Additionally, the Court observed that an arbitration agreement cannot be rendered procedurally unconscionable by events that occur after origination of the contract, such as when an arbitration forum becomes unavailable subsequent to the formation of the contract. The Court held that where an arbitration agreement names a forum for arbitration that becomes unavailable, a court may appoint a substitute forum if the choice of forum was an “ancillary logistical concern,” rather than “integral” to the contract.
Finally, the Court considered whether an agreement to arbitrate a claim under the West Virginia Consumer Credit and Protection Act is an unenforceable waiver of a consumer’s right to a jury trial under the Act’s anti-waiver provision. The Court concluded that the West Virginia statute could not be applied to invalidate consumer arbitration agreements because a state law cannot target arbitration provisions for disfavored treatment.
Price v. Morgan Financial Group, No. 12-1026 (W. Va. June 24, 2013).
In Price v. Morgan Financial Group, the West Virginia Supreme Court of Appeals affirmed the enforcement of an arbitration agreement by a defendant that was not a party to the agreement. The arbitration provision extended its coverage to the contracting party’s “directors, officers and employees and to any Registered Representative,” and the Court held this language was broad enough to include the non-party defendant.
The Court also found that, although the contract was not a negotiated contract, the arbitration provision was neither procedurally nor substantively unconscionable. The Court observed that the plaintiff was able to obtain the contracted-for services from another source, the plaintiff was an educated woman working as a teacher, the contract was not complex, the arbitration provision was expressly referenced directly above the signature line in capital letters, the arbitration provision was equally binding on both parties, and the costs of arbitrating were readily discoverable at the time the parties entered into the agreement.
Salamie v. TD Ameritrade, Inc., and Salamie v. Conrad, No. 12-0634 (W. Va. June 24, 2013).
In Salamie v. TD Ameritrade, Inc., and Salamie v. Conrad, the West Virginia Supreme Court of Appeals upheld a West Virginia circuit court’s dismissal of a complaint to vacate an arbitration award because the complaint challenging the arbitration award was not filed within three months of the arbitrator’s award, as required by the Federal Arbitration Act.
American Express Co. v. Italian Colors Restaurant, 570 U.S. (2013).
In American Express Company v. Italian Colors Restaurant, the United States Supreme Court considered the enforceability of a clause prohibiting class action arbitration of any claim, even when the cost of individually arbitrating the claim would likely exceed the potential recovery. The opponent argued the economies of individual litigation would contravene the policies of federal anti-trust law. The Court affirmed that an agreement to arbitrate is a matter of contract, which terms must be enforced under the Federal Arbitration Act absent a “contrary congressional command.” Finding no such command, the Court held that a waiver of class action arbitration is enforceable, even if a class action is the more economically feasible means to pursue the federal-law claim.
These decisions highlight just a few of the factors that may be considered by a court in determining the validity and enforceability of an arbitration provision. If you are seeking to draft or enforce a valid arbitration provision, you should consult an attorney for a complete assessment of the factors that must be considered.