Arbitration Required Even After Chosen Arbitrator Becomes Unavailable

The Virginia Supreme Court recently enforced an arbitration agreement even though it required arbitration through a company that could not conduct the proceedings.  The Court overturned the ruling of the trial court, which found that the unavailability of the selected arbitrator invalidated the agreement.  The decision confirms Virginia’s continuing preference for arbitration and broad enforcement of arbitration agreements.  See Schuiling v. Harris, 286 Va. 187 (Sep. 12, 2013).

The case involved the owner of Brown Automotive Group, William Schuiling, and his live-in housecleaner, Samantha Harris.  Ms. Harris signed an arbitration agreement with Mr. Schuiling as a condition of employment that stated that all claims “arising out of or related to [her] employment … shall be resolved exclusively by arbitration administered by the National Arbitration Forum under its code of procedure then in effect.”  The agreement also contained a “severability” clause which allowed a court to separate from the agreement any portion ruled invalid or unenforceable, and enforce the remaining terms.

Ms. Harris filed a 10-count complaint in Fairfax County Circuit Court alleging breach of contract, tort claims, and statutory violations.  Mr. Schuiling filed a motion to compel arbitration acknowledging that the selected arbitrator, National Arbitration Forum (NAF), was not available, asking the circuit court to appoint a substitute arbitrator under Virginia’s Uniform Arbitration Act.  (Beginning in 2009, the NAF limited the types of arbitrations it will perform as part of its settlement of a lawsuit brought against it by the Minnesota Attorney General’s office.)  Ms. Harris opposed the motion and argued that the parties’ selection of NAF was an essential part of the arbitration agreement, which did not provide for appointment of a substitute arbitrator, rendering the agreement unenforceable without NAF.

The circuit court denied the motion to compel arbitration, and Mr. Schuiling filed an interlocutory appeal with the Virginia Supreme Court.  On appeal, the Court reasoned that Virginia law favors enforcement of arbitration agreements, and considered the impact of the severability clause on the selection of the arbitrator.  Because other terms in the agreement showed the parties’ preference for arbitration, the Court found that the choice of arbitrator was not an integral part of the agreement.  The agreement only concerned arbitration, and no other subject matter (like employment terms).  If the term selecting the arbitrator was not separated from the rest of the agreement, the whole agreement would fail, which the Court found would frustrate the parties’ intent.

Decisions in other courts have found NAF arbitration agreements unenforceable because of NAF’s recent unavailability.  Nevertheless, the Virginia Supreme Court closely analyzed the language of the agreement and the intent of the parties, and ruled that arbitration remained required by the parties’ agreement and must continue with appointment of a substitute arbitrator.