E-Alert Case Updates

Arbitration Agreement Enforced Even Though Designated Arbitrator Was Unavailable

Schuiling v. Harris
Record. No. 121582 (Supreme Court of Virginia, September 12, 2013)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this appeal, the Supreme Court of Virginia considered whether a provision in an arbitration agreement (“Agreement”) designating a specified arbitrator is an integral part of the agreement, thereby rendering the agreement unenforceable upon the unavailability of the designee. The Court held that such a designation was not an integral part of the agreement and that the trial court should have enforced the arbitration agreement to the extent possible even though the designated arbitrator was not available.

The underlying arbitration agreement was between and employer and an employee. In 2011, the employee filed a complaint against the employer. Relying on the Agreement, the employer filed a motion to enforce arbitration under VA. CODE ANN. § 8.01-581.02(A). The employer stated that the National Arbitration Forum (“NAF”) was no longer available to administer the arbitration and requested the circuit court to appoint a substitute arbitrator under VA. CODE ANN. § 8.01-581.03.

The employee opposed the motion, arguing that the Agreement exclusively designated the NAF as the arbitrator which was an integral part of the Agreement. She argued that the parties’ agreement to arbitrate was conditioned on NAF conducting the arbitration. She concluded that its unavailability, coupled with the Agreement’s failure to provide for the appointment of a substitute arbitrator, rendered the Agreement unenforceable. The circuit court agreed with the employee and entered an order denying the motion to compel arbitration. The appellate court permitted the employer to file an interlocutory appeal to challenge the trial court’s ruling on the enforceability of the arbitration agreement.

The Court noted that under the current statutory scheme, there was a public policy in favor of arbitration, but this was not absolute. It construed the Agreement under ordinary contractual provisions to determine whether the aspect of the Agreement designating the arbitrator was integral or severable. The Court determined the arbitrator provision was severable. First, the Agreement included a severability provision which permitted severing not only whole provisions but any part of any provision determined to be invalid or unenforceable in whole or in part for any reason, without affecting any other provision of the Agreement, which were to remain in full force and effect. Second, the sole object of the Agreement was to require arbitration of any and all claims. Third, the employee and employer were presumed to know that the applicable code, § 8.01-581.03, directed the circuit court to appoint an arbitrator when an arbitration agreement fails to appoint or provide for the appointment of an arbitrator, or when the appointed arbitrator fails to or is unable to act.

Therefore, relying on the intention of the parties as expressed in the language of the Agreement, the Court concluded that NAF’s designation as arbitrator was not integral and was severable, in order to give effect to the arbitration requirement, which was the sole purpose of the Agreement. The Court reversed the circuit court and remanded the case.