Schuiling v. Harris ( 2013 )

PRESENT: All the Justices
WILLIAM SCHUILING
OPINION BY
v. Record No. 121582 JUSTICE WILLIAM C. MIMS
September 12, 2013
SAMANTHA HARRIS
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Leslie M. Alden, Judge
In this appeal, we consider whether a provision in an
arbitration agreement designating a specified arbitrator is an
integral part of the agreement, thereby rendering the agreement
unenforceable upon the unavailability of the designee.
I. BACKGROUND AND MATERIAL PROCEEDINGS BELOW
The facts are not in dispute. In 2007, William Schuiling
hired Samantha Harris as his full-time, live-in housecleaner.
As a condition of her employment, Harris signed an arbitration
agreement (“the Agreement”). The Agreement consisted of a one-
page, pre-printed form under the heading “Brown Automotive
Group” titled “Arbitration Agreement.” 1 The Agreement provided
in relevant part:
This Agreement is entered into between
William Schuiling & Brown’s Auto [sic]
(“Employer”) and Samantha Harris
(“Employee”).
Employee enters into this Agreement in
consideration of Employer’s promises herein
contained and in consideration of
Employer’s employment of Employee or, in
the event Employee was already employed by
1
Schuiling owns Brown Automotive Group.
Employer at the time of the execution of
this Agreement, Employee's continued
employment by Employer.
The parties hereby agree as follows:
1. Any and all claims, disputes or
controversies arising out of or related to
Employee's employment by Employer shall be
resolved exclusively by arbitration
administered by the National Arbitration
Forum under its code of procedure then in
effect. The determination or award
rendered therein shall be binding and
conclusive upon the parties. Any
modification or a1teration of this
Agreement shall be in writing and signed by
the parties.
2. Except as provided in paragraph 3,
the claims that the parties hereby agree to
resolve by arbitration include any causes
of action of any kind whatsoever, whether
statutory or based on common law, at law or
in equity, regardless of the relief or
remedy sought, in tort, contract, by
statute, or on any other basis, including
but not limited to any and all claims,
demands, rights, or causes of action
arising out of Employee's employment with
Employer or any employment contract . . . .
5. If any provision of this Agreement
or any part of any provision is determined
to be invalid or unenforceable in whole or
in part for any reason, it shall be
severable from the rest of this Agreement
and shall not affect any other provision of
this Agreement, all of which shall remain
in full force and effect and be enforceable
according to their terms.
In 2011, Harris filed a 10-count complaint against
Schuiling alleging multiple torts, statutory violations, and
breach of contract. Relying on the Agreement, Schuiling filed
a motion to enforce arbitration under Code § 8.01-581.02(A).
In an accompanying memorandum, Schuiling stated that the
2
National Arbitration Forum (“NAF”) was no longer available to
administer the arbitration and requested the circuit court to
appoint a substitute arbitrator under Code § 8.01-581.03.
Harris opposed the motion, arguing that the first
enumerated paragraph of the Agreement exclusively designated
NAF as the arbitrator. Relying on several decisions of federal
and other states’ courts, she contended the Agreement’s
exclusive designation of NAF was an integral part of the
Agreement. Accordingly, she continued, 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 Harris and entered an order
denying the motion to compel arbitration. We awarded Schuiling
this interlocutory appeal pursuant to Code § 8.01-581.016(1).
II. ANALYSIS
In his first assignment of error, Schuiling asserts that
the circuit court’s ruling pays insufficient deference to the
General Assembly’s expressed public policy preference that
arbitration agreements be enforced. He argues that pursuant to
Code § 8.01-581.01, arbitration agreements are presumed to be
valid, enforceable, and irrevocable and Code § 8.01-581.02(A)
requires the court to order the parties to such agreements to
3
proceed to arbitration. Accordingly, he concludes, the court
erred when it determined that it could not appoint a substitute
arbitrator under Code § 8.01-581.03. 2
We have held that the statutory scheme enacted by the
General Assembly favors the enforcement of arbitration
agreements. TM Delmarva Power, L.L.C. v. NCP of Va., 263 Va.
116, 122, 557 S.E.2d 199, 202 (2002). However, that preference
is not absolute. There is no provision in the statutory scheme
prohibiting the parties from agreeing to limit the scope of its
operation. See id. at 123, 557 S.E.2d at 202 (noting that both
public policy “and the plain language of” the arbitration
provision required arbitration) (emphasis added). 3 The
dispositive question in this case, then, is whether Schuiling
and Harris limited their agreement to arbitrate by making it
conditional upon NAF conducting the arbitration. That question
2
Code § 8.01-581.03 provides in relevant part that
[i]f the arbitration agreement provides a
method of appointment of arbitrators, this
method shall be followed. In the absence
thereof, or if the agreed method fails or
for any reason cannot be followed, or when
an arbitrator appointed fails or is unable
to act and his successor has not been duly
appointed, the court on application of a
party shall appoint one or more
arbitrators.
3
The General Assembly has spoken in express terms when it
intends to restrict the parties’ ability to form their
preferred agreement. See, e.g., Code § 11-4.1 (declaring any
provision of a construction contract purporting to indemnify a
party from liability arising from his own negligence “against
public policy” and “void and unenforceable”).
4
is the subject of Schuiling’s second assignment of error, to
which we now turn.
The circuit court determined that the Agreement
exclusively designated NAF as arbitrator, that the designation
was an integral part of the contract, and that NAF’s
unavailability rendered the whole Agreement unenforceable.
Schuiling argues the Agreement’s severability clause evidences
the parties’ intention to arbitrate their disputes irrespective
of the NAF’s unavailability. Conversely, Harris argues that
NAF’s designation cannot be severed because it is integral to
the Agreement.
We review a circuit court’s interpretation of a contract
de novo and “‘have an equal opportunity to consider the words
of the contract within the four corners of the instrument
itself.’” Uniwest Constr., Inc. v. Amtech Elevator Servs., 280
Va. 428, 440, 699 S.E.2d 223, 229 (2010) (quoting Eure v.
Norfolk Shipbuilding & Drydock Corp., 263 Va. 624, 631, 561
S.E.2d 663, 667 (2002)).
The question for the court is what did the
parties agree to as evidenced by their
contract. The guiding light in the
construction of a contract is the intention
of the parties as expressed by them in the
words they have used, and courts are bound
to say that the parties intended what the
written instrument plainly declares.
5
Wilson v. Holyfield, 227 Va. 184, 187, 313 S.E.2d 396, 398
(1984) (quoting Meade v. Wallen, 226 Va. 465, 467, 311 S.E.2d
103, 104 (1984)). We construe the contract as a whole, giving
terms their ordinary meaning unless some other meaning is
apparent from the context. Virginian Ry. Co. v. Hood, 152 Va.
254, 258, 146 S.E. 284, 285 (1929). The various provisions are
harmonized, giving effect to each when reasonably possible, and
are construed considering the circumstances under which they
were executed and the condition of the parties. Id.
A contract is either entire, meaning all its provisions
are integral to the agreement of the parties, or severable.
Eschner v. Eschner, 146 Va. 417, 422, 131 S.E. 800, 802 (1926);
accord Budge v. Post, 544 F. Supp. 370, 381-82 (N.D. Tex. 1982).
Thus, whether a provision is severable or integral is the same
inquiry: a provision integral to the parties’ agreement cannot
be severed and one the parties intended to make severable is
not integral. 4 Accordingly, the analysis is identical: “No
precise or invariable rule can be laid down . . . for it is a
question of construction as to the intention of the parties to
4
Compare Stewart v. GGNSC-Canonsburg, L.P., 9 A.3d 215,
220 (Pa. Super. Ct. 2010) (holding that a court may not sever
an integral provision) and John R. Ray & Sons v. Stroman, 923
S.W.2d 80, 87 (Tex. App. 1996) (citing Budge) (holding that the
existence of a severability clause will not, alone, support the
severance of an integral provision) with Jones v. GGNSC Pierre
LLC, 684 F. Supp. 2d 1161, 1167 (D.S.D. 2010) (holding that a
severability provision may indicate that a provision was not
integral).
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be discovered in each case from the language employed and the
subject matter of the contract.” Eschner, 146 Va. at 422, 131
S.E. at 802 (internal quotation marks and citation omitted);
accord Vega v. Chattan Assocs., 246 Va. 196, 199, 435 S.E.2d
142, 143 (1993); see also Stewart v. GGNSC-Canonsburg, L.P., 9
A.3d 215, 220 (Pa. Super. Ct. 2010) (assessing the intent of
the parties to determine whether provision was integral); Jones
v. GGNSC Pierre LLC, 684 F. Supp. 2d 1161, 1167 (D.S.D. 2010)
(assessing the intent of the parties to determine whether a
provision was severable). In addition, the court considers
“the situation of the parties and the object they had in view
at the time and intended to accomplish.” O'Quinn v. Looney,
194 Va. 548, 551, 74 S.E.2d 157, 159 (1953). 5
Relying on the language used by Schuiling and Harris in
the Agreement, several factors support Schuiling’s position
that the parties intended NAF’s designation as arbitrator to be
5
Many courts have adopted an “integral-versus-ancillary
test” to determine whether Section 5 of the Federal Arbitration
Act, 9 U.S.C. § 1 et seq., permits the appointment of a
substitute arbitrator. See Riley v. Extendicare Health
Facilities, Inc., 826 N.W.2d 398, 404-05 (Wis. Ct. App. 2012)
(collecting cases). Although the parties contend the Act does
not apply in this case, the integral-versus-ancillary test also
turns on the intent of the parties when they formed their
agreement. Id. at 405. Consequently, a determination of
integral or ancillary, severable or not severable is the same
determination: did the parties intend the whole arbitration
requirement to fail upon the unavailability of the designated
arbitrator? The parties’ choice to include or omit a
severability clause may, depending on its scope, provide
insight into their intention.
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severed if unenforceable. The first is the severability
provision itself. It permits 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 “affect[ing] any other provision of th[e] Agreement,
all of which shall remain in full force and effect and be
enforceable according to their terms.”
We must give these expansive phrases their ordinary
meaning. Hood, 152 Va. at 258, 146 S.E. at 285. “[F]or any
reason” includes NAF’s unavailability. “[A]ny part of any
provision” includes the clause in the first enumerated
paragraph designating NAF as arbitrator. Nothing in the
severability clause or any other language in the Agreement
excludes NAF’s designation from the scope of the severability
clause; nothing excludes NAF’s unavailability as a reason for
severance.
Second, as set forth in the first enumerated paragraph,
the sole object of the one-page Agreement is to require
arbitration of “[a]ny and all claims, disputes or controversies
arising out of” Harris’s employment. This arbitration
requirement comprises the entire subject matter of the
Agreement. The Agreement contains no unrelated provisions,
such as non-compete, non-disclosure, or non-solicitation
provisions, that would survive failure of the arbitration
8
requirement. It does not address salary, wages, or term of
employment. The only purpose for the Agreement is to require
the parties to arbitrate any claims “arising out of or related
to” Harris’ employment. Consequently, a determination that
NAF’s designation is not severable would defeat the entire
Agreement. Such an outcome is inconsistent with our obligation
to consider the contract as a whole and harmonize its
provisions, giving effect to each when reasonably possible.
Hood, 152 Va. at 258, 146 S.E. at 285. 6
Third, Schuiling and Harris are presumed to know that Code
§ 8.01-581.03 directs 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. See
Waterfront Marine Constr. v. North End 49ers Sandbridge
Bulkhead Groups A, B and C, 251 Va. 417, 429, 468 S.E.2d 894,
901 (1996) (parties to an arbitration agreement are presumed to
know the provisions of Virginia’s statutory scheme).
6
This construction is supported by the second enumerated
paragraph, which specifically lists the claims the parties
“agree to resolve by arbitration.” (Emphasis added.) It does
not restrict arbitration to arbitration by NAF or make any
reference to the designation in the preceding paragraph. It
makes clear that the parties’ agreement is that the listed
causes of action will be resolved by arbitration, to the
exclusion of other forms of resolution.
9
Nevertheless, they included no language expressing an intention
to limit the court’s statutory authority.
Finally, nothing in the Agreement reflects that the
parties contemplated the contingency that collateral events
might render NAF unavailable and intended the arbitration
requirement itself to terminate if that contingency occurred.
Mere inclusion of the word “exclusively” in NAF’s designation
as arbitrator does not serve that purpose. To the contrary,
the word “exclusively” indicates nothing more than a
designation of the single arbitrator to whose authority each
party agreed to submit, presuming the designated arbitrator
would be available when called upon.
The inclusion of this particular severability clause, with
its broad scope permitting the severance even of parts of
provisions and for any reason, reflects that the parties
intended NAF to be the exclusive arbitrator so long as it was
available. However, if its unavailability made its appointment
unenforceable, the designation would be severed. The absence
of any provision for the appointment of a substitute arbitrator
in such an event reflects nothing more than the parties’
presumed knowledge that Code § 8.01-581.03 provided the
necessary mechanism. Nothing in the Agreement reflects an
intention that the statute should not apply.
10
In sum, while Virginia’s statutory scheme permits the
parties to restrict the operation of Code § 8.01-581.03 in
their agreement, they must state such an intention in express
and unambiguous terms. Otherwise, the statute must control. 7
7
The decisions of federal and other states’ courts to the
contrary cited by Harris are all distinguishable. For example,
the arbitration agreements in Carideo v. Dell, Inc., No. C06-
1772JLR, slip op. at 4 n.2 (W.D. Wash. Oct. 26, 2009),
similarly provided that all claims “shall be resolved
exclusively by arbitration administered by the National
Arbitration Forum under its code of procedure then in effect.”
However, the court noted that neither of the agreements
contained a severability clause. Id., slip op. at 20.
Similarly, the Indiana Court of Appeals made no mention of a
severability clause in Geneva-Roth Capital, Inc. v. Edwards,
956 N.E.2d 1195 (Ind. Ct. App. 2011) or Apex 1 Processing, Inc.
v. Edwards, 962 N.E.2d 663 (Ind. Ct. App. 2012), and no
consideration of the effect of one was included in its
analyses.
Although the arbitration agreement in Riley did include a
severability clause, 826 N.W.2d at 411 n.8, it did not permit
severance of “any part of any provision” “for any reason” as
the severability clause in this Agreement does. The court also
acknowledged that “‘the mere fact parties name an arbitral
service to handle arbitrations and specify rules to be applied
does not, standing alone, make that designation integral to the
agreement.’” Id. at 410 (quoting Geneva-Roth, 956 N.E.2d at
1200). Its decision not to sever NAF’s designation was
influenced by the reason for NAF’s unavailability, id., which
is not one of the permissible considerations in our
determination of whether the designation is severable or
integral. See Eschner, 146 Va. at 422, 131 S.E. at 802;
O'Quinn, 194 Va. at 551, 74 S.E.2d at 159.
There also was a severability clause in Green v. U.S. Cash
Advance Ill., LLC, No. 12 C 8079, slip op. at 16 (N.D. Ill.
Jan. 25, 2013). However, the arbitration requirement in that
case was only one of many provisions in a broad consumer loan
agreement and the severability clause made no specific
reference to it. The court determined that failure of the
arbitration requirement due to the unavailability of the
designated arbitrator would not result in the failure of the
parties’ entire agreement. It distinguished cases in which the
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III. CONCLUSION
Therefore, relying on the intention of the parties as
expressed in the language of the Agreement, we conclude that
NAF’s designation as arbitrator is not integral and is
severable in order to give effect to the arbitration
requirement, the sole purpose of the Agreement. We reverse the
order of the circuit court and remand for further proceedings
consistent with this opinion.
Reversed and remanded.
contracts, like the Agreement here, were stand-alone
arbitration agreements. Id., slip op. at 15.
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