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Media Alerts - Dan Ryan Builders v. Nelson - Fourth Circuit
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March 5, 2013
  Dan Ryan Builders v. Nelson - Fourth Circuit
Headline: No Separate Consideration Required for Arbitration Clause Within Multi-Clause Contract Supported by Adequate Consideration

Area of Law: Contract Law

Issue Presented: Whether West Virginia law requires that an arbitration provision in a multi-clause contract itself be supported by mutual consideration, when the contract as a whole is supported by adequate consideration.

Brief Summary: Dan Ryan Builders, Inc. ("DRB") and Norman Nelson ("Nelson") entered into a contract for the purchase of a home. The contract contained an arbitration clause that preserved DRB's right to seek arbitration or initiate proceedings for damages. The contract, however, limited Nelson to arbitration only. When Nelson discovered defects in the home, he sued DRB and argued that the arbitration clause was unenforceable for lack of consideration. The district court determined that the arbitration clause required separate consideration. Without additional consideration, the district court held that the arbitration clause was unenforceable. Accordingly, the court awarded Nelson damages and dismissed DRB's motion to compel arbitration. On appeal, the United States Court of Appeals for the Fourth Circuit vacated the judgment of the district court. The court also determined that there was an unanswered question of contract unconscionability and remanded the case to determine whether the arbitration clause was unconscionable.

Significance: This case illustrates a hole in West Virginia contract jurisprudence.

Extended Summary: Dan Ryan Builders, Inc. ("DRB") constructed a home in West Virginia and entered into a contract with Norman Nelson and his wife ("Nelson") for the sale and purchase of that home. The contract contained an arbitration clause which preserved DRB's right to seek arbitration or to initiate proceedings for damages. The contract limited Nelson to arbitration. Despite the arbitration clause, the Nelsons filed an action in district court seeking damages against DRB for alleged defects in the construction of the home. The Nelsons conceded that the contract as a whole was supported by adequate consideration, but argued that the arbitration provision was unenforceable because it was not supported by mutual consideration. The district court agreed that the arbitration clause lacked mutual consideration and DRB appealed the judgment. The United States Court of Appeals for the Fourth Circuit noted that there was no controlling West Virginia law on the question of whether individual provisions of multi-clause contracts require additional consideration when the contract as a whole is supported by sufficient consideration. Accordingly, the Fourth Circuit certified the question to the Supreme Court of Appeals of West Virginia, which determined that West Virginia's law of contract formation only requires that the contract as a whole be supported by adequate consideration.

In its unpublished per curiam opinion, the Fourth Circuit accepted the Supreme Court of Appeals of West Virginia's conclusion that the arbitration clause at issue was valid and did not require separate consideration. Additionally, the Fourth Circuit noted that under West Virginia's unconscionability doctrine, a court may decline to enforce an arbitration provision if the obligations or rights created by the clause unfairly lack mutuality. In this case, the parties dispute whether the arbitration clause was unconscionable under West Virginia law. Therefore, the Fourth Circuit concluded that the issue should be decided in the first instance by the district court. The judgment of the district court was vacated and the case was remanded to the lower court to determine the question of unconscionability.

To read the full opinion, please visit:
http://www.ca4.uscourts.gov/Op...ublished/111215.U.pdf.

Panel : Circuit Judges Keenan and Floyd; District Judge Moon, sitting by designation

Argument Date: 3/20/12

Date of Issued Opinion: 01/29/13

Docket Number: No. 11-1215

Decided: Vacated and remanded

Case Alert Author: Emmanuel Fishelman

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.

Author of Opinion: Unpublished per curiam opinion

Case Alert Circuit Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 03/05/2013 09:31 PM     4th Circuit  

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