No. 14-1288 - Richard Parsons v. Halliburton Energy Services, Inc.
                                                                        FILED
                                                                     April 11, 2016
                                                                       released at 3:00 p.m.
LOUGHRY, Justice, concurring, in part, and dissenting, in part:      RORY L. PERRY, II CLERK
                                                                   SUPREME COURT OF APPEALS
                                                                        OF WEST VIRGINIA



              I concur in the majority’s affirmance of the circuit court’s order dismissing the

action and compelling arbitration. I dissent to the extent the majority overrules our precedent

to pave the path for a new point of law that is contrary, not only to the strong federal policy

favoring arbitration, but also to the majority of jurisdictions that require proof of prejudice

before a waiver of arbitration rights will be found.



              Our common law demonstrates that general contract defenses, such as waiver,

“may be applied to invalidate an arbitration agreement.” Syl. Pt. 9, in part, Brown ex rel.

Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (2011), rev’d on other

grounds by Marmet Health Care Ctr., Inc. v. Brown, __ U.S. __, 132 S.Ct. 1201 (2012). A

review of our law regarding waiver of contract rights reveals that more than thirty-five years

ago, in Mundy v. Arcuri, 165 W.Va. 128, 267 S.E.2d 454 (1980), a case involving a

conditional sales contract involving the purchase of real estate, the Court explained that

              in order to support estoppel or waiver, a party must have been
              induced to rely on certain facts, and must have done so to his
              detriment. Nisbet v. Watson, 251 S.E.2d 774 (W.Va. 1979),
              Syllabus Point 3; Humble Oil & Refining Co. v. Lane, 152
              W.Va. 578, 165 S.E.2d 379 (1969); Helmick v. Broll, 150 W.Va.
              285, 144 S.E.2d 779 (1965), Syllabus Point 2[.]



                                              1

Mundy, 165 W.Va. at 131, 267 S.E.2d at 456-57. A few years later, this Court relied on

Mundy when it ruled that “[d]etrimental reliance is essential to the assertion of waiver or

estoppel.” Syl. Pt. 3, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356

S.E.2d 488 (1987). While the Court would later “disapprove” of this point of law in a

footnote in Potesta v. U.S. Fidelity & Guar. Co., 202 W.Va. 308, 316 n.11, 504 S.E.2d 135,

143 n.11 (1998), importantly, the Court did not expressly overrule syllabus point three of

National Mutual through a new syllabus point in Potesta. In fact, as the majority accurately

explains in its footnote six in the instant matter, “[t]his Court has consistently held . . . that

‘language in a footnote generally should be considered obiter dicta’ and that if this Court is

to create a new point of law, it will do ‘so in a syllabus point and not in a footnote.’ State ex

rel. Med. Assurance of West Virginia, Inc. v. Recht, 213 W.Va. 457, 471, 583 S.E.2d 80, 94

(2003).” Valentine v. Sugar Rock, Inc., 234 W.Va. 526, 532, 766 S.E.2d 785, 791 (2014);

see also Syl. Pt. 2, in part, Walker v. Doe, 210 W.Va. 490, 558 S.E.2d 290 (2001) (“[N]ew

points of law . . . will be articulated through syllabus points as required by our state

constitution.”), overruled on other grounds by State v. McKinley, 234 W.Va. 143, 764 S.E.2d

303 (2014).



               The Court in Potesta also cited, but did not overrule, syllabus point three of

Jarvis v. Pennsylvania Cas. Co., 129 W.Va. 291, 40 S.E.2d 308 (1946), which provides:

                     The denial of liability under a policy of insurance on one
               or more grounds at a time when insurer has knowledge of other

                                                2

              grounds of forfeiture, does not result in a waiver or estoppel as
              to such other grounds, where no prejudice results to the insured
              from reliance on the initial statement of the insurer.

Potesta, 202 W.Va. at 142, 504 S.E.2d at 315. Instead, the Court in Potesta undertook to

distinguish the terms waiver and estoppel, setting forth a string cite of cases from other states

as supportive of its conclusion that the differences between these two terms demonstrate why

prejudice1 must be demonstrated for estoppel but not for waiver. Potesta, 202 W.Va. at 144­

45, 504 S.E.2d at 317-18. The majority relies upon Potesta in this regard to overrule our

common law that required a showing of prejudice before the waiver of a contractual right

would be found. However, the majority fails to recognize that the law in those same states

listed in the Potesta string cite either require the party opposing arbitration to show prejudice

before a court will find that the right to arbitrate has been waived, or at least consider

prejudice to be an important factor in the waiver analysis.2


       1
       “Prejudice” is defined as “[d]amage or detriment to one’s legal rights or claims.”
Black’s Law Dictionary 1370 (10th ed. 2014).
       2
        See County of Hawai’i v.UniDev, LLC, 289 P.3d 1014 (Haw. Ct. App. 2012),
vacated, in part, on other grounds by County of Hawai’i v. UniDev, LLC, 301 P.3d 588
(Haw. 2013) (finding no waiver of right to arbitration where plaintiff had not met its burden
of showing prejudice had resulted from defendant’s acts allegedly inconsistent with right to
arbitrate); Abramson v. Wildman, 964 A.2d 703, 709 (Md. Ct. Spec. App. 2009) (internal
citation omitted) (“‘Delay in attempting to compel arbitration, by itself, may not be
conclusive, although coupled with prejudice to the other party can support a finding of
waiver.’”); Carpenter v. Pomerantz, 634 N.E.2d 587, 591 (Mass. Ct. App. 1994) (finding
that “any delay by the defendant in exercising his right to demand arbitration has not been
shown to be due to reasons which were inconsistent with that right” and “[b]ecause the
defendant took no action inconsistent with his right to demand arbitration, the plaintiff cannot
show any prejudice on account of such actions”); Boogher v. Stifel, Nicolaus & Co., Inc., 825
                                                                                  (continued...)

                                               3

              As we previously explained,

                      [a] state statute, rule, or common-law doctrine, which
              targets arbitration provisions for disfavored treatment and which
              is not usually applied to other types of contract provisions,
              stands as an obstacle to the accomplishment and execution of
              the purposes and objectives of the Federal Arbitration Act, 9
              U.S.C. § 2, and is preempted.

Syl. Pt. 8, Brown, 228 W.Va. at 657, 724 S.E.2d at 261. I believe that, at best, Potesta

created confusion in our common law.3 Yet, instead of relying upon the common law


       2
         (...continued)
S.W.2d 27, 30 (Mo. Ct. App. 1992) (internal citation omitted) (“Any doubts about an
allegation of waiver, delay, or a like defense to arbitrability should be resolved in favor of
arbitration. . . . The party claiming waiver has a heavy burden, and a court will find waiver
when the party seeking arbitration substantially invokes the judicial process to the detriment
or prejudice of the other party.”); Cole v. Jersey City Med. Ctr., 572 A.3d 224, 233 (N.J.
2013) (finding that assessment of whether party to arbitration agreement has waived that
remedy must focus on totality of circumstances, including whether party’s litigation conduct
resulted in prejudice to other party); Cusimano v. Schnurr, 144 N.E.3d 212, 218 (N.Y. 2015)
(“Generally, when addressing waiver, courts should consider the amount of litigation that has
occurred, the length of time between the start of the litigation and the arbitration request, and
whether prejudice has been established”); David v. Merrill Lynch, Pierce, Fenner and Smith,
Inc., 440 N.W.2d 269, 274 (N.D. 1989)(internal citation omitted) (“Under the Federal policy
favoring arbitration, a party does not automatically waive arbitration merely by engaging in
pleading and discovery activities. More is required than action inconsistent with the
arbitration provision; prejudice to the party opposing arbitration must also be shown.”).
       3
        A survey of our law reveals that a showing of detriment or prejudice has also been
required or considered in various non-contractual situations before a waiver of some right
will be found. See West Virginia Bd. of Educ. v. Marple, __ W.Va. __, __ S.E.2d __, 2015
WL 7101971 (2015) (emphasis added) (citations omitted) (“The defense of qualified
immunity ‘is not waived if the defendant “raised the issue at a pragmatically sufficient time,
and [the plaintiff] was not prejudiced in its ability to respond.” . . . Rather, we look at the
overall context of the litigation and have found no waiver where no evidence of prejudice
exists and sufficient time to respond to the defense remains before trial.’”); Lowndes Bank
v.	 MLM Corp., 182 W.Va. 339, 349, 395 S.E.2d 762, 772 (1990) (emphasis added)
                                                                                  (continued...)

                                               4

expressed in National Mutual and Jarvis,4 the majority elects to rely upon dicta and a

footnote in Potesta to overrule those cases and create new points of law that may serve to

facilitate the waiver of arbitration rights in the future.



               Under the majority’s new syllabus point six, if a party engages in acts

inconsistent with its contractual right to arbitration, a court will be able to find a waiver of

the right to arbitrate notwithstanding the absence of any detriment or prejudice to the party

opposing arbitration. Clearly, this new point of law runs afoul of the majority of other

jurisdictions that either require a showing of prejudice, or at least consider it a significant

factor in determining whether a party has waived the right to arbitrate.5 The federal circuit


       3
        (...continued)
(“[T]echnical defects in the service of process are waived unless the party improperly served
can show prejudice.”); Johnson v. State Dept. of Motor Vehicles, 173 W.Va. 565, 318 S.E.2d
616 (1984) (noting that motorist had waived argument that Commissioner unduly delayed
proceeding by failing to object to continuances and finding lower court was without authority
to reverse license suspension on basis of delay where motorist was not prejudiced by delay
in proceedings); Syl. Pt. 1, State ex rel. Heck’s Discount Centers, Inc. v. Winters, 147 W.Va.
861, 132 S.E.2d 374 (1963) (emphasis added) (“A mere question of misjoinder of parties or
of causes of action in a proceeding in prohibition, no possible prejudice appearing therefrom,
will be treated as waived in the absence of objection by any party to such proceeding.”).
       4
         Cf. Earl T. Browder, Inc. v. Cnty. Ct. of Webster Cnty., 143 W.Va. 406, 412, 102
S.E.2d 425, 430 (1958) (addressing parties’ contract that provided for arbitration as condition
precedent to right of either party to sue; finding that by ignoring plaintiff’s demand for
arbitration, defendant had refused demand and waived its right to require arbitration; and
concluding that such waiver could not be used to plaintiff’s detriment).
       5
       See Aurora Healthcare, Inc. v. Ramsey, 83 So.3d 495, 500 (Ala. 2011) (citations
omitted) (“[T]he party opposing arbitration must demonstrate both (1) that the party seeking
                                                                               (continued...)

                                                5

courts of appeal are in agreement. In fact, of the twelve regional circuit courts, ten require




       5
          (...continued)
arbitration has substantially invoked the litigation process, bespeaking an intent to abandon
arbitration in favor of the judicial process, and (2) that the party opposing arbitration would
be ‘substantially prejudiced’ by an order requiring it to submit to arbitration. . . . Because
there is a strong federal policy favoring arbitration, waiver of the right to compel arbitration
is not lightly inferred, and the party seeking to prove waiver has a ‘heavy burden.’”); Augusta
v. Keehn & Assoc.’s, 123 Cal.Rptr.3d 595, 603 (Cal. Ct. App. 2011) (internal citations
omitted) (“Despite the delay in seeking arbitration and lack of intent to arbitrate, the conduct
of the party demanding arbitration must have prejudiced the opposing party. . . . ‘The moving
party’s mere participation in litigation is not enough; the party who seeks to establish waiver
must show that some prejudice has resulted from the other party’s delay in seeking
arbitration.’”); MSO, LLC v. DeSimone, 94 A.3d 1189, 1198 (Conn. 2014) (“Consistent with
our prior case law, we hold that a party opposing arbitration on the ground of waiver must
demonstrate that it will be prejudiced by enforcement of the arbitration clause. In so holding,
we reaffirm the waiver standard that has developed through our common law. We further
recognize that our prejudice requirement is consistent with the majority of federal circuit
courts which similarly require prejudice to the party opposing arbitration on the grounds of
waiver.”); Simpson v. Pep Boys-Manny Moe & Jack, Inc., 847 So.2d 617, 621 (La. Ct. App.
2003) (“The burden of proof to establish waiver of arbitration is heavy, and the party seeking
to establish waiver must show that it has been prejudiced by the actions of the party
requesting arbitration.”); Lovelace Farms, Inc. v. Marshall, 442 S.W.3d 202, 207 (Mo. Ct.
App. 2014) (citations omitted) (“Both Missouri and federal courts use the same three-factor
test to establish waiver of the right to arbitrate. The party seeking to establish waiver bears
the burden of demonstrating that the alleged waiving party: ‘(1) had knowledge of the
existing right to arbitrate; (2) acted inconsistently with that existing right; and (3) prejudiced
the party opposing arbitration by such inconsistent acts.’”); Culberson v. REO Properties
Corp., 670 S.E.2d 316, 320 (N.C. Ct. App. 2009) (“‘[A] party has impliedly waived its
contractual right to arbitration if by its delay or by actions it takes which are inconsistent with
arbitration, another party to the contract is prejudiced by the order compelling arbitration.’
Prime South Homes v. Byrd, 401 S.E.2d 822, 825 (N.C. Ct. App. 1991) (citation omitted).”);
Deloitte & Touche, LLP v. Unisys Corp., 594 S.E.2d 523, 525 (S.C. Ct. App. 2004)
(explaining that to “[t]o establish that there has been a waiver, a party must show it has been
unduly burdened by the other party’s delay in seeking arbitration.”).

                                                6

a showing of prejudice before a waiver of the right to arbitrate will be found, while the other

two circuits consider prejudice to be a relevant factor for consideration.6

       6
         See FPE Found. v. Cohen, 801 F.3d 25, 31 (1st Cir. 2015) (citation omitted) (“As we
have consistently said, ‘prejudice is essential for a [finding of] waiver’”); Technology in
Partnership, Inc. v. Rudin, 538 Fed.App’x. 38, 39 (2nd Cir. 2013) (internal citations omitted)
(“‘The key to a waiver analysis is prejudice.’”); In re Pharmacy Ben. Managers Antitrust
Litig., 700 F.3d 109, 117 (3rd Cir. 2012) (citation omitted) (“‘[P]rejudice is the touchstone
for determining whether the right to arbitrate has been waived by litigation conduct.’”);
Wheeling Hosp., Inc. v. Health Plan of the Upper Ohio Valley, Inc., 683 F.3d 577, 587 (4th
Cir. 2012) (citation omitted) (emphasis in original) (“‘[E]ven in cases where the party
seeking arbitration has invoked the “litigation machinery” to some degree, “the dispositive
question is whether the party objecting to arbitration has suffered actual prejudice.’”); Al
Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416, 421 (5th Cir. 2014) (citations omitted)
(“[A] party waives its right to arbitrate if it (1) ‘substantially invokes the judicial process’ and
(2) thereby causes ‘detriment or prejudice’ to the other party.”); Art Shy v. Navistar Int’l
Corp., 781 F.3d 820, 827-28 (6th Cir. 2015) (citation omitted) (finding that party will not be
found to have waived arbitration unless it acts in manner inconsistent with arbitration
agreement or delays asserting arbitration to actual prejudice of opposing party and
emphasizing that “[b]oth inconsistency and actual prejudice are required”); Cooper v. Asset
Acceptance, LLC, 532 Fed.App’x. 639, 641 (7th Cir. 2013) (citations omitted) (explaining
that court focuses on several factors in determining whether right to arbitrate has been
waived, including “the degree of prejudice that would be suffered by the party against whom
arbitration has been invoked.”); Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003)
(explaining that party’s acts inconsistent with right to arbitrate “must result in prejudice to
the other party for waiver to have occurred”); Samson v. NAMA Holdings, LLC, 637 F.3d
915, 934 (9th Cir. 2010) (citation omitted) (“A party seeking to prove waiver of the right to
arbitrate must show: ‘(1) knowledge of an existing right to compel arbitration; (2) acts
inconsistent with that existing right; and (3) prejudice to the party opposing arbitration from
such inconsistent acts.’”); In re Cox Enterprises, Inc., 790 F.3d 1112, 1116 (10th Cir. 2015)
(citation omitted) (explaining that circuit had adopted a six-factor test to determine if the
right to arbitrate has been waived, including “‘(6) whether the delay affected, misled, or
prejudiced the opposing party.’”); Grigsby & Assoc’s, Inc. v. M Securities Inc., __
Fed.App’x.__, 2015 WL 9461341 *2 (11th Cir. 2015) (“‘A party has waived its right to
arbitrate if, under the totality of the circumstances, the party has acted inconsistently with the
arbitration right and, in so acting, has in some way prejudiced the other party.’ S&H
Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir.1990).”); Khan v.
Parsons Global Servs., Ltd., 521 F.3d 421, 428 (D.C. Cir. 2008) (noting that finding of
                                                                                      (continued...)

                                                 7

                   In support of its decision to overrule National Mutual and Jarvis–to the extent

each required proof of prejudice or detrimental reliance to establish a waiver of contractual

rights–the majority distinguishes waiver and estoppel. However, the cases relied upon by the

majority in support of its analysis, including a 1944 Delaware decision,7 a 1979 Illinois

decision,8 a 1915 Oklahoma decision,9 and a 1912 Texas decision,10 are all equally unavailing

in terms of a waiver of arbitration rights. Indeed, more recent jurisprudence in those same

states requires that prejudice be shown before a waiver of arbitration rights will be found.

See LAS, Inc. v. Mini-Tankers, USA, Inc., 796 N.E.2d 633, 638 (Ill. App. Ct. 2003) (“ A

waiver of the right to arbitrate may not be found in the absence of prejudice to the party

opposing arbitration.”); Action Drug Co. v. R. Baylin Co., No. 9383, 1989 WL 69394, *5

(Del. Ch. June 19, 1989) (citation omitted) (explaining that “a party will be found to have

waived its right to arbitration where it has substantially invoked the judicial process to the

detriment of the other party” and concluding that Baylin had “not satisfied its heavy burden


         6
        (...continued)
prejudice unnecessary to conclude that right to compel arbitration has been waived but then
basing determination of waiver by primarily considering whether defendant had invited court
to consider merits of plaintiff’s claims and whether plaintiff had suffered prejudice as result
of defendant’s actions).
         7
             Nation Miller, Inc. v. N. Ins. Co. of New York, 39 A.2d 23 (Del. Super. 1944).
         8
             Salloum Foods & Liquor, Inc. V. Parliament Ins. Co., 388 N.E.2d 23 (Ill. App. Ct.
1979).
         9
             Northwestern Nat. Life Ins. Co. v. Ward, 155 P. 524 (Okla. 1915).
         10
              Equitable Life Assur. Soc’y of U.S. v. Ellis, 147 S.W. 1152 (Tex. 1912).

                                                  8

of establishing that it was prejudiced by Action’s allegedly tardy effort to compel

arbitration.”); Northland Ins. Co. v. Kellogg, 897 P.2d 1161, 1162 (Okla. Civ. App. 1995)

(internal citations omitted) (“While no uniform test has been formulated for the

determination of waiver, there is a six-factor test that essentially encompasses the various

tests adopted in most jurisdictions. Those factors are . . . (6) whether the opposing party has

been prejudiced by the delay. The prejudice must be the result of delay in asserting the right

to arbitrate—not from prejudice or acts inherent in the arbitration process.”); Hogg v. Lynch,

Chappell & Alsup, P.C., __ S.W.3d __, 2015 WL 6951153, **9, 17 (Tex. App. 2015)

(explaining that “[i]n order to establish that a party has waived its right to arbitration, we

must conclude not only that the party has substantially invoked the judicial process, but also

that the party opposing arbitration has been prejudiced by the moving party’s delay in moving

to compel arbitration.”).



              Given the strong federal policy favoring arbitration, I would reaffirm our

existing common law in National Mutual and Jarvis that required a showing of detriment or

prejudice before the waiver of a contract right could be found.11 Certainly, there are sound

       11
         Even states whose common law does not require a showing of prejudice to find a
waiver of contractual rights have determined that prejudice is required for a waiver of
arbitration rights. For example, in Perry Homes v. Cull, 258 S.W.3d 580, (Tex. 2008), the
defendants asked the court to reconsider it prior decisions that found “prejudice [to be] a
necessary requirement of waiver by litigation conduct.” Id. at 593-94. The defendants
argued that because Texas law “does not require a showing of prejudice for waiver, but only
an intentional relinquishment of a known right[,]” the court could not “impose a waiver rule
                                                                              (continued...)

                                              9

reasons for requiring a party to show prejudice or detriment before a court will find a waiver

of the right to arbitrate. As one court explained, “‘“there is an overriding federal policy

favoring arbitration[,]”’” which is a “speedy and relatively inexpensive means of dispute

resolution[;]” therefore, waiver of the right to arbitrate requires prejudice, which “typically

is found only where the petitioning party’s conduct has substantially undermined this

important public policy or substantially impaired the other side’s ability to take advantage

of the benefits and efficiencies of arbitration.’” Adolph v. Coastal Auto Sales, Inc., 110

Cal.Rptr.3d 104, 110 (Cal. App. Ct. 2010) (citations omitted); see also Carteret Cty. v.

United Contractors of Kinston, Inc., 462 S.E.2d 816, 821 (N.C. Ct. App. 1995) (noting strong

public policy favoring arbitration and observing that “[b]efore a party will be found to have

       11
         (...continued)
for arbitration contracts that does not apply to all others.” Id. at 594. In addressing this
argument, the Supreme Court of Texas explained:

                     Under Texas law, waiver may not include a prejudice
              requirement, but estoppel does. In cases of waiver by litigation
              conduct, the precise question is not so much when waiver occurs
              as when a party can no longer take it back. As noted above,
              Texas estoppel law does not allow a party to withdraw a
              representation once the other party takes “action or forbearance
              of a definite and substantial character.” Using precisely the
              same terms, the Restatement does not allow a party to withdraw
              an option contract when the offeree has taken substantial action
              based upon it. In these contexts, prejudice is an element of the
              normal contract rules.

                      Thus, we agree with the courts below that waiver of
              arbitration requires a showing of prejudice.

Id. at 595 (footnotes and internal citations omitted).

                                              10

impliedly waived a contractual right to arbitration, that party must have, by its delay or

actions inconsistent with arbitration, caused another party to be prejudiced by an order

compelling arbitration.”); Board of Educ. Taos Mun. Schools v. The Architects, Taos, 709

P.2d 184, 185 (N.M. 1985) (stating that three principles guide court’s consideration of

whether right to arbitrate has been waived and observing that second principle that “relief

will only be granted upon a showing of prejudice to the party opposing arbitration” flows

from first principle of “strong policy preference for arbitration as a more efficient mode of

resolving disputes than litigation”).



              Recently, I cautioned the majority of this Court in another arbitration matter

with a reminder that

              [t]his Court has been notoriously chastised by the United States
              Supreme Court for its failure to . . . ensure that [] [arbitration]
              agreements are not “singled out” for hostile treatment or
              disfavor. See Marmet Health Care Center v. Brown, __ U.S. __,
              132 S.Ct. 1201, 182 L.Ed.2d 42 (2012). The majority’s opinion
              does little to convey that the United States Supreme Court’s
              message was received[.]

Schumacher Homes of Circleville, Inc. v. Spencer, 235 W.Va. 335, 353, 774 S.E.2d 1, 19

(2015) (Loughry, J., dissenting).12 Because I believe that our common law would have


       12
        The majority opinion in Schumacher was recently vacated by the United States
Supreme Court in Schumacher Homes of Circleville, Inc. v. Spencer, __ U.S. __, __ S.Ct. __,
2016 WL 763198 (2016). The Supreme Court has remanded Schumacher for our further
consideration in light of DIRECTV, Inc. v. Imburgia, 577 U.S.__ (2015), which we will
undertake later this term of court.

                                              11

allowed this Court to align itself with the majority of other jurisdictions on this issue, I

cannot support the majority’s new points of law to the extent that they expressly reject

requiring a party asserting a waiver of arbitration to demonstrate prejudice. As this Court

held long ago, “[t]he law favors arbitrations and every reasonable intendment will be

indulged in support of them[.]” Syl. Pt. 1, in part, Mutual Imp. Co. v. Merchants’& Business

Men’s Mut. Fire Ins. Co., 112 W.Va. 291, 164 S.E. 256 (1932).



              For these reasons, I respectfully concur, in part, and dissent, in part.




                                             12

