Dan Ryan Builders v. Norman Nelson

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DAN RYAN BUILDERS, 

INCORPORATED,

Petitioner-Appellant,

v.  No. 11-1215

NORMAN C. NELSON; ANGELIA

NELSON,

Respondents-Appellees.



Appeal from the United States District Court

for the Northern District of West Virginia, at Martinsburg.

John Preston Bailey, Chief District Judge.

(3:10-cv-00076-JPB-JES)

Argued: March 20, 2012

Decided: May 10, 2012

Before KEENAN and FLOYD, Circuit Judges, and

Norman K. MOON, Senior United States District Judge for

the Western District of Virginia, sitting by designation.

Order of Certification of a question of law to the Supreme

Court of Appeals of West Virginia. Judge Keenan prepared

the order, in which Judge Floyd and Senior Judge Moon

joined.

2 RYAN BUILDERS v. NELSON

COUNSEL

ARGUED: Susan Renee Snowden, MARTIN & SEIBERT,

LC, Martinsburg, West Virginia, for Appellant. Lawrence M.

Schultz, BURKE, SCHULTZ, HARMAN & JENKINSON,

Martinsburg, West Virginia, for Appellees. ON BRIEF: Paul

B. Weiss, MARTIN & SEIBERT, LC, Martinsburg, West

Virginia, for Appellant.

ORDER

BARBARA MILANO KEENAN, Circuit Judge:

The United States Court of Appeals for the Fourth Circuit,

exercising the privilege afforded to it by the State of West

Virginia through the Uniform Certification of Questions of

Law Act, West Virginia Code §§ 51-1A-1 through 51-1A-13,

requests that the Supreme Court of Appeals of West Virginia

exercise its discretion to answer the following question:

Does West Virginia law require that an arbitration

provision, which appears as a single clause in a

multi-clause contract, itself be supported by mutual

consideration when the contract as a whole is sup-

ported by adequate consideration?

This Court acknowledges that the Supreme Court of Appeals

may restate this question. See W. Va. Code §§ 51-1A-4, 51-

1A-6(a)(3).

The material facts of the case before us are not in dispute.

Dan Ryan Builders, Inc., (DRB) constructed a new home in

Berkeley County, West Virginia, and entered into a contract

with Norman Nelson for the sale and purchase of that home.

The contract contained an arbitration provision (the arbitra-

tion provision) that states, in part,

RYAN BUILDERS v. NELSON 3

[t]he parties . . . acknowledge that they are and shall

be bound by arbitration and are barred from initiat-

ing any proceeding or action whatsoever in connec-

tion with this Agreement.

In the same arbitration provision, however, DRB reserved the

right to seek arbitration or to file an action for damages if

Nelson "fail[ed] to settle on the Property within the time

required under [the] Agreement."

Despite his contractual promise to submit any claim to arbi-

tration, Nelson, along with his wife Angelia Nelson (collec-

tively, the Nelsons), filed an action against DRB in the

Berkeley County Circuit Court seeking damages for certain

alleged defects in the construction of the home. DRB later

filed a petition in federal district court under the Federal Arbi-

tration Act (FAA), 9 U.S.C. §§ 1 through 17, seeking to com-

pel the Nelsons to submit their claims to arbitration.

In response to DRB’s petition, the Nelsons argued in the

district court that the arbitration provision was unenforceable

as a matter of law because it was not supported by mutual

consideration, notwithstanding the fact that the contract as a

whole was supported by adequate consideration. The Nelsons

contended that the arbitration provision lacked mutual consid-

eration because it permitted DRB to initiate litigation to

resolve certain types of disputes, but restricted the Nelsons to

the forum of arbitration for resolving any dispute with DRB.

The district court agreed with the Nelsons, dismissing

DRB’s motion to compel arbitration. Dan Ryan Builders, Inc.

v. Nelson, 2010 WL 5418939 (N.D. W. Va. Dec. 23, 2010).

The district court held that while DRB had satisfied prelimi-

nary requirements to compel arbitration under the FAA, the

arbitration provision was unenforceable as a matter of law for

want of mutual consideration. Id. DRB timely filed this

appeal.

4 RYAN BUILDERS v. NELSON

On appeal, DRB argues that the district court erred in deny-

ing DRB’s motion to compel arbitration. According to DRB,

West Virginia law requires that courts review contracts in

their entirety, rather than focusing on a single provision, when

deciding whether consideration is adequate. DRB contends

that its position is supported by the Supreme Court’s decision

in Marmet Health Care Center, Inc. v. Brown, 132 S. Ct.

1201 (2012), which was issued after the district court’s deci-

sion in this case.

The Nelsons advance the contrary contention that West

Virginia law requires mutual consideration within an arbitra-

tion provision, regardless whether the contract as a whole is

supported by adequate consideration. In support of their argu-

ment, the Nelsons rely on Saylor v. Wilkes, 613 S.E.2d 914,

923-24 (W. Va. 2005), a decision cited by the district court.

In our view, however, neither Marmet nor Saylor answers

the question presented in the case before us. In Marmet, the

Supreme Court reviewed the decision rendered by the West

Virginia Supreme Court of Appeals (the state court) in Brown

v. Genesis Healthcare Corp., 2011 WL 2611327 (W. Va. June

29, 2011) (vacated). There, the state court held that, as a mat-

ter 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 [ ] negligence." Brown, 2011 WL

2611327 at *29. The state court alternatively held that two of

the contested arbitration clauses at issue in the appeal were

"unconscionable and unenforceable" against the plaintiffs in

those cases. Id. at *30.

On appeal, the Supreme Court vacated the state court’s

public policy determination that pre-dispute arbitration agree-

ments are unenforceable in cases of personal injury and

wrongful death claims. The Court held that the state court

decision violated the FAA as an unlawful categorical prohibi-

RYAN BUILDERS v. NELSON 5

tion of arbitration. Marmet, 132 S. Ct. at 1203-04. The

Supreme Court further held that the state court’s alternative

holding may have been influenced by the state court’s public

policy determination. Id. at 1204. The Supreme Court there-

fore remanded the case to the state court for a determination

whether, absent the public policy considerations, the arbitra-

tion clauses were otherwise enforceable based on state com-

mon law principles. Id.

Although two of the arbitration clauses reviewed in Marmet

contained provisions that were not mutually coextensive

regarding the parties’ obligation to arbitrate, similar to the

arbitration provision at issue before us, the Supreme Court’s

holding was limited to the state court’s consideration of pub-

lic policy under West Virginia law. Neither the Supreme

Court nor the state court addressed the separate issue whether

the arbitration provisions failed for want of mutual consider-

ation. Therefore, we conclude that Marmet does not resolve

the issue before us.

We also conclude that the holding in Saylor is not applica-

ble to the present case. There, a prospective employee had

executed an arbitration agreement with an agency hired by the

employer to resolve employment disputes. Saylor, 613 S.E.2d

at 917. In that agreement with the agency, the prospective

employee promised that, if hired, she would submit all

employment-related disputes to arbitration. Id. The Supreme

Court of Appeals of West Virginia held that the arbitration

agreement was unenforceable because it contained a material

misrepresentation that the employer was required to arbitrate

any disputes with its employees, and because of the "gross

imbalance of values exchanged." Id. at 924. The court further

held that the employer’s promise to review the prospective

employee’s employment application provided insufficient

consideration for the prospective employee’s promise to arbi-

trate all employment-related claims. Id.

Unlike the arbitration provision at issue before us, the arbi-

tration agreement in Saylor was a separate contract entered

6 RYAN BUILDERS v. NELSON

into between the employee and the dispute resolution agency,

a third party to the employment contract. Significantly, the

employer in Saylor was not a party to the arbitration agree-

ment executed by the prospective employee. In contrast, the

arbitration provision before us is part of a multi-clause con-

tract between parties who both made certain promises regard-

ing arbitration and other substantive rights. Therefore, the

holding in Saylor that the arbitration agreement failed for

want of consideration does not answer the question presented

in this case.

The question before us likewise is unanswered by our

unpublished decision in Howard v. King’s Crossing, Inc., 264

F. App’x. 345 (4th Cir. Feb. 19, 2008), which is not binding

precedent and on which the district court relied. In Howard,

a purchaser of a condominium filed an action in Maryland

state court alleging contract and tort claims against the seller

of the condominium. Id. at 346. The seller removed the case

to federal district court and sought to dismiss the action based

on the mandatory arbitration clause contained in the parties’

sales contract. Id. That arbitration clause was similar to the

clause at issue before us permitting the seller, but not the

buyer, to file a legal action based on certain types of disputes.

See id. at 347. Applying Maryland law, we held that the arbi-

tration clause was unenforceable because it was not supported

by mutual consideration. Id.

Our holding in Howard was based on our application of

Maryland law, because we are required to apply principles of

state law in resolving questions concerning the validity, revo-

cability, or enforceability of contracts. Perry v. Thomas, 482

U.S. 483, 492 n.9 (1987). Under Maryland contract law, an

arbitration provision must contain a mutually coextensive

exchange of promises to arbitrate, regardless whether the con-

tract as a whole is supported by adequate consideration. See

Cheek v. United Healthcare of the Mid-Atlantic, Inc., 835

A.2d 656, 665 (Md. 2003) (citing Holmes v. Coverall N. Am.,

Inc., 649 A.2d 365, 370 (Md. 1994)).

RYAN BUILDERS v. NELSON 7

In the case before us, because the parties’ contract is gov-

erned by West Virginia law, we are not permitted to rely on

our holding in Howard. We additionally observe that at least

one other state in this Circuit has established precedent con-

trary to the law in Maryland on this issue. Under North Caro-

lina law, when a contract as a whole is supported by adequate

consideration, there is no requirement that an arbitration pro-

vision contained in that contract subject all parties to the con-

tract to the same arbitration obligations. Tillman v.

Commercial Credit Loans, Inc., 629 S.E.2d 865, 874-75 (N.C.

Ct. App. 2006), rev’d on other grounds, 655 S.E.2d 362 (N.C.

2008). These conflicting views of the state appellate courts in

Maryland and North Carolina illustrate the importance of cer-

tifying this issue to the Supreme Court of Appeals of West

Virginia for resolution of this issue of West Virginia law.

Because we are unaware of any controlling decisions from

West Virginia on this determinative question, we conclude

that this unresolved issue of West Virginia law is properly

subject to review by the Supreme Court of Appeals of West

Virginia upon this Court’s certification of the question. See

W. Va. Code § 51-1A-3.

The names and addresses of counsel of record for the par-

ties are:

Counsel for DRB

Susan R. Snowden

Paul B. Weiss

Martin & Seibert, L.C.

1453 Winchester Avenue

P.O. Box 1286

Martinsburg, WV 25402

Counsel for Nelson

Lawrence M. Schultz

Burke, Schultz, Harman & Jenkinson

8 RYAN BUILDERS v. NELSON

1444 Edwin Miller Boulevard

P.O. Box 1938

Martinsburg, WV 25401-1938

Under the privilege made available by the West Virginia

Uniform Certification of Questions of Law Act, it is hereby

ORDERED:

(1) That the question stated above be, and the same

hereby is, certified to the West Virginia Supreme

Court of Appeals; and

(2) That the Clerk of this Court forward to the

Supreme Court of Appeals of West Virginia, under

the official seal of this Court, a copy of this order

and, to the extent requested by the West Virginia

Supreme Court of Appeals, the original or a copy of

the record in this Court; and

(3) That any request for all or part of the record be

fulfilled by the Clerk of this Court simply upon noti-

fication from the Clerk of the Supreme Court of

Appeals.

This Order is entered by Circuit Judge Keenan, with the

concurrence of Circuit Judge Floyd and Senior District Judge

Moon.

QUESTION CERTIFIED

FOR THE COURT:

BARBARA MILANO KEENAN

United States Circuit Judge