W.Va. high court rules in another case over arbitration clauses

Jessica M. Karmasek Jun. 14, 2012, 10:40am


CHARLESTON, W.Va. (Legal Newsline) - The West Virginia Supreme Court of Appeals says a lower court erred in refusing to enforce an arbitration clause, compelling the owner of a Morgantown office building to settle its claims arising from a post-construction maintenance agreement.

The Court -- in its second ruling this week over such agreements -- said plaintiff Glenmark Holding LLC failed to establish that an arbitration agreement with defendants York International Corporation and parent corporation Johnson Controls Inc. was "unconscionable."

The Monongalia County Circuit Court, in October 2011, refused to compel Glenmark to arbitrate its claims against York, Johnson Controls and Morgan Keller Inc.

In an order dated Oct. 5, 2011, the circuit court denied the York and Johnson Controls' motion to compel arbitration. In another order dated Oct. 19, 2011, the court similarly denied Morgan Keller's motion.

In both orders, the lower court determined that compulsory arbitration would be insufficient and inequitable to resolve all of Glenmark's claims against the petitioners, and "would result in an unnecessarily delayed 'piecemeal' resolution of this conflict and the waste of judicial resources."

In response, York, Johnson Controls and Morgan Keller filed a petition for a writ of prohibition with the state's high court.

In it, they asked that the Court stop enforcement of the circuit court's orders and that it halt all proceedings by Glenmark against them before the lower court.

Glenmark's lawsuit stems from one of its office buildings -- Suncrest Executive Office Plaza, or United Center.

Soon after its construction in August 2004, the company said the building began experiencing serious problems with the heating, ventilation and air conditioning, or HVAC, system.

In June 2011, Glenmark brought a lawsuit claiming that the HVAC system had been "improperly designed," "improperly constructed," and that the equipment used in the system was defectively designed or manufactured or that the system had been improperly maintained.

Glenmark named seven defendants, including the general contractor that oversaw construction of the building, Morgan Keller, and the two companies that manufactured and later maintained the HVAC equipment, York and Johnson Controls.

In August 2011, Morgan Keller filed a motion to compel Glenmark to arbitrate its claims against it. Likewise, York and Johnson Controls filed a separate motion to compel.

In response to the motions, Glenmark asserted that the arbitration clauses were unconscionable and unenforceable.

The Court, in its 24-page ruling, noted that while it found the circuit court's orders to be "eminently reasonable, logical and just," they also are "directly contrary" to the U.S. Supreme Court's interpretations of the Federal Arbitration Act.

"In accordance with the holdings of the Supreme Court, we hold that the FAA requires that if a lawsuit presents multiple claims, some subject to an arbitration agreement and some not, the former claims must be sent to arbitration -- even if this will lead to piecemeal litigation," Chief Justice Menis Ketchum wrote for the Court Wednesday.

"After examining both of the circuit court's orders, we find that the circuit court overstepped its authority.

"The circuit court's blanket refusal to enforce the petitioners' arbitration clauses -- merely because it would be inequitable and inefficient to Glenmark, to the petitioners, and to the remaining defendants -- ran afoul of the FAA."

The FAA permits courts to protect parties from "grossly unfair, unconscionable" bargains; it does not permit courts to protect commercial litigants from "stupid or inefficient" bargains willingly and deliberately entered into, the Court said.

As to Morgan Keller's agreement with Glenmark, the Court said there was nothing in the record to indicate that the contract was formed in a manner that prevented Glenmark from having a "reasonable opportunity" to understand the terms of the arbitration clause.

As for York and Johnson Controls' agreement, the Court said Glenmark and the circuit court's order does not identify any "inequities, improprieties or unfairness" in the bargaining process and formation of the contract.

"The record is devoid of any evidence or inference to establish that this contract term was commercially unreasonable under the particular circumstances of this construction case," Ketchum explained. "Further, there is no evidence indicating whether this limitation will impair Glenmark's ability to pursue relief from the York petitioners.

"Our law requires a showing of both procedural and substantive unconscionability, at least in some small measure. Neither has been shown."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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