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Question of Whether Arbitration Provision Requires Separate Consideration Certified to the Supreme Court of Appeals of West Virginia

Dan Ryan Builders, Inc. v. Norman C. Nelson, et al.
Appeal No.: 11-1215, (U.S. Court of Appeals for the Fourth Circuit, May 10, 2012)

by Eric M. Leppo, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this recently issued Memorandum Order from the U.S. Court of Appeals for the Fourth Circuit, the Court deemed it necessary to certify a question of law to the Supreme Court of Appeals of West Virginia pursuant to the Uniform Certification of Questions of Law Act.

The Appellant, Dan Ryan Builders, Inc. (“DRB”), constructed a home in Berkeley County, West Virginia. The Appellees, Norman and Angelia Nelson, entered into a purchase agreement with DBR to buy the house. A portion of the purchase agreement stated “[t]he parties . . . acknowledge that they are and shall be bound by arbitration and are barred from initiating any proceeding or action whatsoever in connection with this Agreement.” Later in the same provision, however, the contract states that DRB had the right to file arbitration or file suit for damages in the event the Nelsons did not close on the property.

Despite the arbitration provision, the Nelsons filed suit in State Court alleging construction defects in the home. In turn, DRB filed a Petition in the Federal District Court for the Northern District of West Virginia under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 through 17, seeking to compel the Nelsons to submit their claims to arbitration.

The Nelsons argued that the arbitration provision on which DRB relied lacked mutual consideration because it permitted DRB to initiate litigation to resolve certain types of disputes, but limited the Nelsons’ means of resolution to arbitration. The district court determined that DRB had satisfied the FAA’s preliminary requirements to compel arbitration, but that the provision was unenforceable, as a matter of law, for want of mutual consideration. There was no question the contract as a whole was supported by adequate consideration.

DRB appealed the dismissal of its Petition to the Fourth Circuit. DRB argued that West Virginia law requires that courts review contracts in their entirety, rather than focusing on a single provision, when determining the adequacy of consideration. DRB raised the Supreme Court’s decision in Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012) for support. Alternatively, the Nelsons argued that under Saylor v. Wilkes, 613 S.E.2d 914, 923-24 (W. Va. 2005), West Virginia law requires mutual consideration within an arbitration provision, regardless of whether the contract as a whole is supported by adequate consideration.

The Fourth Circuit determined that neither Marmet nor Saylor controlled the question before it based on distinguishing features of each case. Likewise, the Fourth Circuit’s own prior ruling on this question in Howard v. King’s Crossing, Inc., 264 F. App’x. 345 (4th Cir. Feb. 19, 2008), was an application of Maryland law, and as such could not control this West Virginia contract. (In Howard, the Fourth Circuit applied Maryland law holding that it required an arbitration provision to contain a mutually coextensive exchange of promises to arbitrate regardless whether the contract as a whole is supported by adequate consideration.)

West Virginia, like Maryland, statutorily provides authority for its highest court to answer questions of law certified to it by any court of the United States. The Uniform Certification of Questions of Law Act is codified in West Virginia as West Virginia Code §§ 51-1A-1, et seq.

As the Fourth Circuit was not aware of any controlling decisions from West Virginia on the determinative question, it concluded that the unresolved issue was proper for review by the Supreme Court of Appeals of West Virginia, and certified the question to that Court.


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