IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 1998 Term
STATE OF WEST VIRGINIA EX REL.
UNITED ASPHALT SUPPLIERS, INC.,
HONORABLE DAVID H. SANDERS, JUDGE OF THE CIRCUIT COURT OF BERKELEY COUNTY;
MARTINSBURG L.L.C.; GIANT FOOD STORES, INC.; RICHARD D. POOLE, INC.; AND UNITED PAVING,
INC., A WEST VIRGINIA CORPORATION,
Writ of Prohibition
Submitted: November 10, 1998
Filed: December 10, 1998
Susan Snowden, Esq. Michael D. Lorenson, Esq.
Douglas S. Rockwell, Esq. Bowles, Rice, McDavid, Graff & Love
Joseph L. Caltrider, Esq. Martinsburg, West Virginia
Martin & Seibert
Martinsburg, West Virginia David Flores, Esq.
Attorneys for Petitioner Harmon & Davies, P.C.
Giant Food Stores & Richard D. Poole
Attorneys for Martinsburg L.L.C.,
JUSTICE WORKMAN delivered the Opinion of the Court and was joined by CHIEF
JUSTICE DAVIS, JUSTICES MAYNARD, STARCHER and MCCUSKEY.
JUSTICE MCGRAW did not participate in the decision of this case..
SYLLABUS BY THE COURT
1. "In determining
whether to entertain and issue the writ of prohibition for cases not involving an absence
of jurisdiction but only where it is claimed that the lower tribunal exceeded its
legitimate powers, this Court will examine five factors: (1) whether the party seeking the
writ has no other adequate means, such as direct appeal, to obtain the desired relief; (2)
whether the petitioner will be damaged or prejudiced in a way that is not correctable on
appeal; (3) whether the lower tribunal's order is clearly erroneous as a matter of law;
(4) whether the lower tribunal's order is an oft repeated error or manifests persistent
disregard for either procedural or substantive law; and (5) whether the lower tribunal's
order raises new and important problems or issues of law of first impression. These
factors are general guidelines that serve as a useful starting point for determining
whether a discretionary writ of prohibition should issue. Although all five factors need
not be satisfied, it is clear that the third factor, the existence of clear error as a
matter of law, should be given substantial weight." Syl. Pt. 4, State ex rel. Hoover
v. Berger, 199 W.Va. 12, 483 S.E.2d 12 (1996).
2. "By their
contract, parties may lawfully make the decision of arbitrators or any third person a
condition precedent to a right of action upon the contract." Syl. Pt. 1, Board of
Educ. v. W. Harley Miller, Inc., 159 W. Va. 120, 221 S.E.2d 882 (1975).
3. A court may not direct
a nonsignatory to an agreement containing an arbitration clause to participate in an
arbitration proceeding absent evidence that would justify consideration of whether the
nonsignatory exception to the rule requiring express assent to arbitration should be
Petitioner United Asphalt
Suppliers, Inc. ("United Asphalt") seeks a writ of prohibition in connection
with the March 19, 1998, order of the Circuit Court of Berkeley County directing it to
participate in arbitration proceedings. As a nonsignatory to any contract containing an
arbitration clause, Petitioner argues that it should be permitted to seek redress in a
judicial forum. Having thoroughly reviewed this matter, we conclude that the lower court
erred in ordering United Asphalt, as a nonsignatory to any arbitration agreement, to
resolve its dispute through arbitration. Accordingly, we determine that Petitioner is
entitled to a writ of prohibition.
On September 15, 1995, Martinsburg, L.L.C. (hereinafter referred to as "Owner" or "Respondent") and Giant Food Stores (hereinafter referred to as "Lessor"or "Respondent") entered into a contract with Richard Poole, Inc. (hereinafter referred to as "Contractor" or "Respondent") to build a supermarket in Martinsburg, West Virginia. The Contractor entered into a subcontract with United Paving to pave the parking lot area of the grocery store. The Petitioner in this case, United Asphalt, sold United Paving the asphalt materials used to pave the parking lot. When Contractor failed to pay United Paving under
the subcontract,See footnote 1 1 Petitioner filed a mechanic's lien on January 17, 1997, against Owner and
Lessee for the cost of the materials it had supplied to United Paving.
Petitioner initiated a
civil action in circuit court to recover the $124,717.38 plus interest that it had
incurred in material outlays. At the same time that Petitioner instituted its suit, United
Paving filed a separate civil action against Owner, Lessee, and Contractor to recover on
the subcontract. By order dated March 19, 1998, the circuit court consolidated the two
actions seeking recompense for the asphalting of the parking lot. As part of the
consolidation order, the lower court stayed further proceedings before that tribunal
pending AAA arbitration proceedings between Contractor and United Paving. In addition, the
circuit court ordered Petitioner to participate in the arbitration proceeding.See footnote 2 2 Petitioner seeks a
writ of prohibition to prevent enforcement of the lower court's directive which required
United Asphalt to resolve its claims through arbitration.
II. Standard of Review
We recently set forth the applicable standard of review for writs of prohibition that do not involve jurisdictional concerns:
In determining whether to entertain and issue the writ of prohibition for cases not involving an absence of jurisdiction but only where it is claimed that the lower tribunal exceeded its legitimate powers, this Court will examine five factors: (1) whether the party seeking the writ has no other adequate means, such as direct appeal, to obtain the desired relief; (2) whether the petitioner will be damaged or prejudiced in a way that is not correctable on appeal; (3) whether the lower tribunal's order is clearly erroneous as a matter of law; (4) whether the lower tribunal's order is an oft repeated error or manifests persistent disregard for either procedural or substantive law; and (5) whether the lower tribunal's order raises new and important problems or issues of law of first impression. These factors are general guidelines that serve as a useful starting point for determining whether a discretionary writ of prohibition should issue. Although all five factors need not be satisfied, it is clear that the third factor, the existence of clear error as a matter of law, should be given substantial weight.
Syl. Pt. 4, State ex rel. Hoover v. Berger, 199 W.Va. 12, 483 S.E.2d 12
(1996). Petitioner asserts that prohibition is required in this case because there is no
adequate remedy by appeal as the lower court's ruling is interlocutory in nature. In
addition, United Asphalt contends the lower court erred in directing it to participate in
arbitration based on the fact that it never signed an agreement that contained an
This Court has recognized in syllabus point one of Board of Education v. W. Harley Miller, Inc., 159 W. Va. 120, 221 S.E.2d 882 (1975), that "[b]y their contract, parties may lawfully make the decision of arbitrators or any third person a condition precedent to a right of action upon the contract." Accord, State ex rel. Center Designs, Inc. v Henning, 201 W. Va. 42, 491 S.E.2d 42 (1997). The parties are in agreement that the construction contract entered into between Contractor and Owner and Lessor as well as the subcontract between Contractor and United Paving each contained arbitration clauses. The issue presented by this case is whether United Asphalt can be forced to participate in arbitration proceedings arising under contractual agreements to which it was not a signatory.
Petitioner maintains that
it is hornbook law that "mutuality of assent is an essential element of all
contracts." Bailey v. Sewell Coal Co., 190 W. Va. 138, 140, 437 S.E.2d 448, 450
(1993) (quoting Wheeling Downs Racing Ass'n v. West Virginia Sportservice, Inc., 158 W.
Va. 935, 216 S.E.2d 234 (1975)). Since United Asphalt never agreed to submit its claims to
arbitration, Petitioner argues that it cannot be required to resolve its claims through
arbitration. Citing the recent decision of the United States Supreme Court in Air Line
Pilots Association v. Miller, __ U.S. __, 118 S.Ct. 1761 (1998), Petitioner asserts that
"[o]rdinarily, 'arbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.'" __ U.S. at
__, 118 S.Ct. at 1767 (quoting United Steelworkers of America v. Warrior & Gulf Nav.
Co., 363 U.S. 574, 582 (1960)). Consequently, "a party who has not agreed to
arbitrate will normally have a right to a court's decision about the merits of its
dispute. . . ." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995).
Respondents argue that the
lower court correctly referred Petitioner's claims to arbitration based on the identity of
interest between United Asphalt and United Paving. Based on the fact that the same
individual-- Joe Dugan--owns and operates both United Asphalt and United Paving,
Respondents contend that United Asphalt's claims are subject to arbitration.See footnote 3 3 In support of its
position, Respondents cite the decision of the Fourth Circuit Court of Appeals in J.J.
Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d 315 (4th Cir. 1988), in which the
court ruled that claims against the parent company could be referred to arbitration even
though the parent company was not a party to the arbitration agreement. Id. at 320-21. The
court reasoned that "[w]hen the charges against a parent company and its subsidiary
are based on the same facts and are inherently inseparable," arbitration is
permissible with regard to the nonsignatory party. Id. In explanation of its ruling the
Court of Appeals stated, "'[i]f the parent corporation was forced to try the case,
the arbitration proceedings would be rendered meaningless and the federal policy in favor
of arbitration effectively thwarted.'" Id. at 321 (citing Sam Reisfeld & Son
Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976)).
The J.J. Ryan case is
frequently cited as authority for the existence of a well- recognized exception to the
rule that only parties who have actually signed an agreement containing an arbitration
clause can be forced to arbitrate their claims. See Thomson-CSF, S.A. v. American
Arbitration Ass'n, 64 F.3d 773, 776-79 (2nd Cir. 1995) (discussing five theories for
binding nonsignatories to arbitration agreements and stating that "[t]his Court has
made clear that a nonsignatory party may be bound to an arbitration agreement if so
dictated by the 'ordinary principles of contract and agency'"); Boyd v. Homes of
Legend, Inc., 981 F. Supp. 1423, 1432 (M.D. Ala. 1997); Goodwin v. Ford Motor Credit Co.,
970 F. Supp. 1007, 1016 (M.D. Ala. 1997); Usina Costa Pinto S.A. Acucar E Alcool v. Louis
Dreyfus Sugar Co., 933 F. Supp. 1170, 1179 (S.D.N.Y. 1996); Hinson v. Jusco Co., 868 F.
Supp. 145, 149 (D. S.C. 1994). As the district court explained in Wilson v. Waverlee
Homes, Inc., 954 F. Supp. 1530 (M.D. Ala.), aff'd, 127 F.3d 40 (11th Cir. 1997)
"[t]here are instances, and cases, where nonsignatories to arbitration clauses may be
equitably compelled to pursue their claims against a defendant in arbitration." Id.
at 1534; cf. Dickinson v. Chris Myers Pontiac-Nissan-GMC, Inc., 711 So.2d 984, 989 (Ala.
1998) (discussing distinction made by Second Circuit Court of Appeals in Thomson-CSF,
supra, between cases in which signatory seeks to avoid arbitration with nonsignatory who
is attempting to resolve issues intertwined with agreement containing arbitration clause
and those in which signatory seeks to compel nonsignatory to arbitrate).
While a clear exception to the rule against compelling nonsignatories to arbitrate does exist, the limited record upon which this case was submitted does not permit us to even consider whether that exception applies under the facts of this case. Although Respondents rely almost exclusively on the alleged similar identity in interests of United Asphalt and United Paving to support their contention that arbitration is proper,See footnote 4 4 the record before us contains nothing other than a bare assertion of such identity in corporate interests.See footnote 5 5 We are understandably reluctant to accept such allegation as true without an affidavit or other document evidencing the alleged similarity of ownership interest that Respondents avow.
Despite the recognized exception to the rule requiring express assent to require arbitration, there is equally "[p]ersuasive authority . . . that a . . . court is not required to compel arbitration between parties who have not agreed to such arbitration." Collins v. International Dairy Queen, Inc., 169 F.R.D. 690, 693 (M.D. Ga. 1997). The court in Collins stated:
Federal policy favors arbitration over litigation and requires a district court to resolve any doubt about the application of an arbitration clause in favor of arbitration. Nevertheless, this policy "cannot serve to stretch a contract beyond the scope originally intended by the parties." The policy favoring arbitration does not compel the court to require arbitration of disputes if arbitration was not the intent of the parties.
Id. at 694 (citations omitted and quoting Seaboard Coast Line Ry. Co. v.
Trailer Train Co., 690 F.2d 1343, 1348 (11th Cir. 1982)). Finding no basis for departing
from well-established principles concerning arbitration in this case, we hold that a court
may not direct a nonsignatory to an agreement containing an arbitration clause to
participate in an arbitration proceeding absent evidence that would justify consideration
of whether the nonsignatory exception to the rule requiring express assent to arbitration
should be invoked.
Based on the foregoing, a writ of prohibition is issued prohibiting enforcment of the March 19, 1998, order entered by the Circuit Court of Berkeley County directing United Asphalt to participate in arbitration proceedings.
Footnote: 11 The Contractor's failure to pay on the asphalting contract with United Paving stems from its contention that the work performed was defective and had to be corrected by another entity.
Footnote: 22 This ruling was in response to Respondents' motion to require United Asphalt to arbitrate its claims.
Footnote: 33 Respondents state additionally that United Paving admitted in the sister suit (97-C- 339) that its claim for $142,135 included $124,717.38 worth of materials supplied to it by United Asphalt. Further, Respondents observe that the reason United Asphalt has not brought suit against United Paving is because it would have been suing itself. In its responses to interrogatories submitted to it by Respondents, however, United Asphalt denied that it refrained from suing United Paving based on Joe Dugan's ownership interests in United Paving and United Asphalt.
Footnote: 44 Respondents also assert the policy-based contention that the Contractor may be forced to relitigate issues with United Asphalt in circuit court that have already been resolved, possibly to its favor, in arbitration. In addition, Respondents argue that arbitration is proper because United Asphalt alleged its claim with reference to the construction subcontract in its complaint.
Footnote: 55 Moreover, although Respondents represent in their brief that Joe Dugan owns and operates both United Asphalt and United Paving, a review of United Asphalt's answers to Respondents' interrogatories indicates that Mr. Dugan is "principal and part owner" of both of those companies.