You might have to arbitrate your dispute, even if your chosen arbitrator no longer exists.
Schuiling v. Harris, ___ Va. ___, 2013 Va. LEXIS 99 (Sept. 12, 2013). In Schuiling v. Harris, the Virginia Supreme Court decided whether a provision of an arbitration agreement that names a specific arbitrator is an integral part of the agreement, such that the unavailability of the arbitrator renders the agreement unenforceable.
In 2007 William Schuiling hired Samantha Harris as his full-time housekeeper. As a condition of her employment, Ms. Harris signed an arbitration agreement. This arbitration agreement was a one-page document, entitled “Arbitration Agreement,” that provided in part that conflicts between Schuiling and Harris would be resolved through arbitration administered by the National Arbitration Forum (NAF).
By 2011 the employment relationship had soured, and Ms. Harris sued Mr. Schuiling, alleging, among other things, breach of contract. In response to Ms. Harris’ lawsuit, Mr. Schuiling filed a motion to enforce arbitration. In Mr. Schuiling’s motion, he noted that the NAF was no longer available and asked the court to appoint another arbitrator.
Ms. Harris responded to Mr. Schuiling’s motion by arguing that the choice of the NAF as arbitrator was an integral part of the arbitration agreement, and the fact that the NAF could not arbitrate the disagreement rendered the arbitration agreement unenforceable.
The Circuit Court agreed with Ms. Harris, denying Mr. Schuiling’s motion for arbitration, and Mr. Schuiling appealed that ruling to the Supreme Court of Virginia. The appeal was granted.
Mr. Schuiling argued to the Supreme Court that the Circuit Court had erred in several ways. First, Mr. Schuiling argued that the Circuit Court’s ruling did not treat the arbitration agreement with the deference it should have been afforded, as according to Virginia statute. He argued that, pursuant to Virginia code, arbitration agreements are presumed to be valid, enforceable, and irrevocable.
The Virginia Supreme Court has held in the past that Virginia’s General Assembly does favor the enforcement of arbitration agreements, but that preference is not absolute.
Mr. Schuiling next argued that the Circuit Court erred by deciding that Mr. Schuiling and Ms. Harris had limited their arbitration agreement by making it conditional upon NAF conducting the arbitration. In assessing this argument, the Virginia Supreme Court analyzed whether the parties intended that the designation of NAF as arbitrator was “integral” or “severable.” An integral provision cannot be severed from the agreement; a severable provision can be.
In assessing whether the parties intended the NAF designation to be integral or severable, the Court looked to the arbitration agreement in an attempt to deduce the intention of the parties. The Court determined that several provisions of the agreement indicated the parties’ intention that the NAF designation be severable. First, the agreement contained a severability provision that allowed a court to sever any part of any provision determined to be invalid or unenforceable, in whole or in part, for any reason. The Court reasoned that “for any reason” included NAF’s unavailability. Second, the sole object of the arbitration agreement was to ensure the arbitration of claims such as the one Ms. Harris brought to Circuit Court, and the Court stated that a determination that NAF’s designation is integral, rather than severable, would defeat the entire agreement. Third, the Court presumed that the parties knew that Virginia Code directs the Circuit Court to appoint an arbitrator when an arbitration agreement fails to appoint or provide for the appointment of an arbitrator. Finally, nothing in the agreement indicated that the parties contemplated that NAF might not be able to arbitrate a conflict and that the parties wished to terminate the agreement if that condition were to occur. Rather, the Court inferred that the parties, from their inclusion of a severability clause, intended that NAF serve as arbitrator if it were able, and if not, that the NAF designation would be severed and a court would appoint another arbitrator.
For these reasons, the Virginia Supreme Court reversed the order of the Circuit Court and compelled the Circuit Court to appoint an arbitrator.
The Supreme Court’s decision in this area emphasizes the importance of careful contracting and the Court’s preference for enforcing agreements to arbitrate.