Richard Parsons v. Halliburton Energy Services, Inc.

No. 14-1288 - Richard Parsons v. Halliburton Energy Services, Inc.

FILED April 11, 2016 released at 3:00 p.m.

LOUGHRY, Justice, concurring, in part, and dissenting, in part: RORY L. PERRY, II CLERK

SUPREME COURT OF APPEALS

OF WEST VIRGINIA I concur in the majority’s affirmance of the circuit court’s order dismissing the action and compelling arbitration. I dissent to the extent the majority overrules our precedent to pave the path for a new point of law that is contrary, not only to the strong federal policy favoring arbitration, but also to the majority of jurisdictions that require proof of prejudice before a waiver of arbitration rights will be found.

Our common law demonstrates that general contract defenses, such as waiver, “may be applied to invalidate an arbitration agreement.” Syl. Pt. 9, in part, Brown ex rel. Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011), rev’d on other grounds by Marmet Health Care Ctr., Inc. v. Brown, __ U.S. __, 132 S.Ct. 1201 (2012). A review of our law regarding waiver of contract rights reveals that more than thirty-five years ago, in Mundy v. Arcuri, 165 W.Va. 128, 267 S.E.2d 454 (1980), a case involving a conditional sales contract involving the purchase of real estate, the Court explained that in order to support estoppel or waiver, a party must have been induced to rely on certain facts, and must have done so to his detriment. Nisbet v. Watson, 251 S.E.2d 774 (W.Va. 1979), Syllabus Point 3; Humble Oil & Refining Co. v. Lane, 152 W.Va. 578, 165 S.E.2d 379 (1969); Helmick v. Broll, 150 W.Va. 285, 144 S.E.2d 779 (1965), Syllabus Point 2[.] Mundy, 165 W.Va. at 131, 267 S.E.2d at 456-57. A few years later, this Court relied on Mundy when it ruled that “[d]etrimental reliance is essential to the assertion of waiver or estoppel.” Syl. Pt. 3, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987). While the Court would later “disapprove” of this point of law in a footnote in Potesta v. U.S. Fidelity & Guar. Co., 202 W.Va. 308, 316 n.11, 504 S.E.2d 135, 143 n.11 (1998), importantly, the Court did not expressly overrule syllabus point three of National Mutual through a new syllabus point in Potesta. In fact, as the majority accurately explains in its footnote six in the instant matter, “[t]his Court has consistently held . . . that ‘language in a footnote generally should be considered obiter dicta’ and that if this Court is to create a new point of law, it will do ‘so in a syllabus point and not in a footnote.’ State ex rel. Med. Assurance of West Virginia, Inc. v. Recht, 213 W.Va. 457, 471, 583 S.E.2d 80, 94 (2003).” Valentine v. Sugar Rock, Inc., 234 W.Va. 526, 532, 766 S.E.2d 785, 791 (2014); see also Syl. Pt. 2, in part, Walker v. Doe, 210 W.Va. 490, 558 S.E.2d 290 (2001) (“[N]ew points of law . . . will be articulated through syllabus points as required by our state constitution.”), overruled on other grounds by State v. McKinley, 234 W.Va. 143, 764 S.E.2d 303 (2014).

The Court in Potesta also cited, but did not overrule, syllabus point three of Jarvis v. Pennsylvania Cas. Co., 129 W.Va. 291, 40 S.E.2d 308 (1946), which provides:

The denial of liability under a policy of insurance on one or more grounds at a time when insurer has knowledge of other grounds of forfeiture, does not result in a waiver or estoppel as to such other grounds, where no prejudice results to the insured from reliance on the initial statement of the insurer.

Potesta, 202 W.Va. at 142, 504 S.E.2d at 315. Instead, the Court in Potesta undertook to distinguish the terms waiver and estoppel, setting forth a string cite of cases from other states as supportive of its conclusion that the differences between these two terms demonstrate why prejudice1 must be demonstrated for estoppel but not for waiver. Potesta, 202 W.Va. at 144­ 45, 504 S.E.2d at 317-18. The majority relies upon Potesta in this regard to overrule our common law that required a showing of prejudice before the waiver of a contractual right would be found. However, the majority fails to recognize that the law in those same states listed in the Potesta string cite either require the party opposing arbitration to show prejudice before a court will find that the right to arbitrate has been waived, or at least consider prejudice to be an important factor in the waiver analysis.2

As we previously explained,

[a] state statute, rule, or common-law doctrine, which targets arbitration provisions for disfavored treatment and which is not usually applied to other types of contract provisions, stands as an obstacle to the accomplishment and execution of the purposes and objectives of the Federal Arbitration Act, 9 U.S.C. § 2, and is preempted.

Syl. Pt. 8, Brown, 228 W.Va. at 657, 724 S.E.2d at 261. I believe that, at best, Potesta created confusion in our common law.3 Yet, instead of relying upon the common law expressed in National Mutual and Jarvis,4 the majority elects to rely upon dicta and a footnote in Potesta to overrule those cases and create new points of law that may serve to facilitate the waiver of arbitration rights in the future.

Under the majority’s new syllabus point six, if a party engages in acts inconsistent with its contractual right to arbitration, a court will be able to find a waiver of the right to arbitrate notwithstanding the absence of any detriment or prejudice to the party opposing arbitration. Clearly, this new point of law runs afoul of the majority of other jurisdictions that either require a showing of prejudice, or at least consider it a significant factor in determining whether a party has waived the right to arbitrate.5 The federal circuit courts of appeal are in agreement. In fact, of the twelve regional circuit courts, ten require a showing of prejudice before a waiver of the right to arbitrate will be found, while the other two circuits consider prejudice to be a relevant factor for consideration.6

See FPE Found. v. Cohen, 801 F.3d 25, 31 (1st Cir. 2015) (citation omitted) (“As we have consistently said, ‘prejudice is essential for a [finding of] waiver’”); Technology in Partnership, Inc. v. Rudin, 538 Fed.App’x. 38, 39 (2nd Cir. 2013) (internal citations omitted) (“‘The key to a waiver analysis is prejudice.’”); In re Pharmacy Ben. Managers Antitrust Litig., 700 F.3d 109, 117 (3rd Cir. 2012) (citation omitted) (“‘[P]rejudice is the touchstone for determining whether the right to arbitrate has been waived by litigation conduct.’”); Wheeling Hosp., Inc. v. Health Plan of the Upper Ohio Valley, Inc., 683 F.3d 577, 587 (4th Cir. 2012) (citation omitted) (emphasis in original) (“‘[E]ven in cases where the party seeking arbitration has invoked the “litigation machinery” to some degree, “the dispositive question is whether the party objecting to arbitration has suffered actual prejudice.’”); Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416, 421 (5th Cir. 2014) (citations omitted) (“[A] party waives its right to arbitrate if it (1) ‘substantially invokes the judicial process’ and (2) thereby causes ‘detriment or prejudice’ to the other party.”); Art Shy v. Navistar Int’l Corp., 781 F.3d 820, 827-28 (6th Cir. 2015) (citation omitted) (finding that party will not be found to have waived arbitration unless it acts in manner inconsistent with arbitration agreement or delays asserting arbitration to actual prejudice of opposing party and emphasizing that “[b]oth inconsistency and actual prejudice are required”); Cooper v. Asset Acceptance, LLC, 532 Fed.App’x. 639, 641 (7th Cir. 2013) (citations omitted) (explaining that court focuses on several factors in determining whether right to arbitrate has been waived, including “the degree of prejudice that would be suffered by the party against whom arbitration has been invoked.”); Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003) (explaining that party’s acts inconsistent with right to arbitrate “must result in prejudice to the other party for waiver to have occurred”); Samson v. NAMA Holdings, LLC, 637 F.3d 915, 934 (9th Cir. 2010) (citation omitted) (“A party seeking to prove waiver of the right to arbitrate must show: ‘(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration from such inconsistent acts.’”); In re Cox Enterprises, Inc., 790 F.3d 1112, 1116 (10th Cir. 2015) (citation omitted) (explaining that circuit had adopted a six-factor test to determine if the right to arbitrate has been waived, including “‘(6) whether the delay affected, misled, or prejudiced the opposing party.’”); Grigsby & Assoc’s, Inc. v. M Securities Inc., __ Fed.App’x.__, 2015 WL 9461341 *2 (11th Cir. 2015) (“‘A party has waived its right to arbitrate if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right and, in so acting, has in some way prejudiced the other party.’ S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990).”); Khan v. Parsons Global Servs., Ltd., 521 F.3d 421, 428 (D.C. Cir. 2008) (noting that finding of

In support of its decision to overrule National Mutual and Jarvis–to the extent each required proof of prejudice or detrimental reliance to establish a waiver of contractual rights–the majority distinguishes waiver and estoppel. However, the cases relied upon by the majority in support of its analysis, including a 1944 Delaware decision,7 a 1979 Illinois decision,8 a 1915 Oklahoma decision,9 and a 1912 Texas decision,10 are all equally unavailing in terms of a waiver of arbitration rights. Indeed, more recent jurisprudence in those same states requires that prejudice be shown before a waiver of arbitration rights will be found. See LAS, Inc. v. Mini-Tankers, USA, Inc., 796 N.E.2d 633, 638 (Ill. App. Ct. 2003) (“ A waiver of the right to arbitrate may not be found in the absence of prejudice to the party opposing arbitration.”); Action Drug Co. v. R. Baylin Co., No. 9383, 1989 WL 69394, *5 (Del. Ch. June 19, 1989) (citation omitted) (explaining that “a party will be found to have waived its right to arbitration where it has substantially invoked the judicial process to the detriment of the other party” and concluding that Baylin had “not satisfied its heavy burden of establishing that it was prejudiced by Action’s allegedly tardy effort to compel arbitration.”); Northland Ins. Co. v. Kellogg, 897 P.2d 1161, 1162 (Okla. Civ. App. 1995) (internal citations omitted) (“While no uniform test has been formulated for the determination of waiver, there is a six-factor test that essentially encompasses the various tests adopted in most jurisdictions. Those factors are . . . (6) whether the opposing party has been prejudiced by the delay. The prejudice must be the result of delay in asserting the right to arbitrate—not from prejudice or acts inherent in the arbitration process.”); Hogg v. Lynch, Chappell & Alsup, P.C., __ S.W.3d __, 2015 WL 6951153, **9, 17 (Tex. App. 2015) (explaining that “[i]n order to establish that a party has waived its right to arbitration, we must conclude not only that the party has substantially invoked the judicial process, but also that the party opposing arbitration has been prejudiced by the moving party’s delay in moving to compel arbitration.”).

Given the strong federal policy favoring arbitration, I would reaffirm our existing common law in National Mutual and Jarvis that required a showing of detriment or prejudice before the waiver of a contract right could be found.11 Certainly, there are sound reasons for requiring a party to show prejudice or detriment before a court will find a waiver of the right to arbitrate. As one court explained, “‘“there is an overriding federal policy favoring arbitration[,]”’” which is a “speedy and relatively inexpensive means of dispute resolution[;]” therefore, waiver of the right to arbitrate requires prejudice, which “typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration.’” Adolph v. Coastal Auto Sales, Inc., 110 Cal.Rptr.3d 104, 110 (Cal. App. Ct. 2010) (citations omitted); see also Carteret Cty. v. United Contractors of Kinston, Inc., 462 S.E.2d 816, 821 (N.C. Ct. App. 1995) (noting strong public policy favoring arbitration and observing that “[b]efore a party will be found to have impliedly waived a contractual right to arbitration, that party must have, by its delay or actions inconsistent with arbitration, caused another party to be prejudiced by an order compelling arbitration.”); Board of Educ. Taos Mun. Schools v. The Architects, Taos, 709 P.2d 184, 185 (N.M. 1985) (stating that three principles guide court’s consideration of whether right to arbitrate has been waived and observing that second principle that “relief will only be granted upon a showing of prejudice to the party opposing arbitration” flows from first principle of “strong policy preference for arbitration as a more efficient mode of resolving disputes than litigation”).

Recently, I cautioned the majority of this Court in another arbitration matter with a reminder that

[t]his Court has been notoriously chastised by the United States Supreme Court for its failure to . . . ensure that [] [arbitration] agreements are not “singled out” for hostile treatment or disfavor. See Marmet Health Care Center v. Brown, __ U.S. __, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012). The majority’s opinion does little to convey that the United States Supreme Court’s message was received[.]

Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 353, 774 S.E.2d 1, 19 (2015) (Loughry, J., dissenting).12 Because I believe that our common law would have allowed this Court to align itself with the majority of other jurisdictions on this issue, I cannot support the majority’s new points of law to the extent that they expressly reject requiring a party asserting a waiver of arbitration to demonstrate prejudice. As this Court held long ago, “[t]he law favors arbitrations and every reasonable intendment will be indulged in support of them[.]” Syl. Pt. 1, in part, Mutual Imp. Co. v. Merchants’& Business Men’s Mut. Fire Ins. Co., 112 W.Va. 291, 164 S.E. 256 (1932).

For these reasons, I respectfully concur, in part, and dissent, in part.