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