In Geological Assessment & Leasing v. O'Hara, 780 S.E.2d 647 (W.Va., 2015), the Supreme Court of Appeals of West Virginia considered three consolidated appeals, each arising out of a circuit court's ruling that a plaintiff's claim that a defendant engaged in the unauthorized practice of law can never, as a matter of law, be referred to arbitration.  In reversing the circuit court's ruling, the Supreme Court reaffirmed that "any state-based rule that prohibits outright the arbitration of a particular type of claim is preempted by the Federal Arbitration Act." 

The three appeals had similar facts arising out of leases the plaintiff landowners entered into with an oil and gas company, Great Lakes Energy Partners, LLC.  With regard to each lease, the landowners were represented by William Capouillez, a geologist who ran a small company by the name of Geological Assessment & Leasing.  Capouillez, who was not an attorney, represented landowners in their lease negotiations with companies who sought to lease the owners' land to drill for oil and gas.  While Capouillez received no direct payment from the landowners themselves, the leases he negotiated included provisions whereby he would share in any bonuses, rentals, and royalties paid by the oil and gas companies to the landowners.  The leases identified Capouillez (or his company) as a "consultant" for the landowners and contained language preventing the leases from being modified to his detriment.

The landowners of the three leases each filed separate civil actions against Capouillez and his company seeking a declaration that his actions constituted the unauthorized practice of law.  As such, the landowners asked the circuit court to hold Capouillez's representation contract for "consulting services" to be unenforceable.  Although each suit was a separately filed civil action, all three were overseen by the same circuit judge.

In response to the lawsuits, Capouillez filed motions to dismiss and moved the circuit court to compel arbitration pursuant to the arbitration clause in each lease.  The plaintiffs resisted the motion to compel arbitration by arguing that the arbitration clauses were contrary to public policy because they were procured through the unauthorized practice of law.  In ruling on the motions to compel arbitration, the circuit court found that Capouillez was a signatory to the leases, and thus could enforce the arbitration clauses and that the plaintiffs' allegations fell within the substantive scope of the arbitration clause.  However, the circuit court did not pass judgment on the validity of the arbitration provisions in the three leases under the law of contracts.  Rather, the circuit court held that, as a matter of law, a claim alleging the unauthorized practice of law could not be submitted to arbitration.  In support of its decision, the circuit court concluded that because the judicial branch of the government has the constitutional and inherent power to define, supervise, regulate, and control the practice of law, nothing in an arbitration clause or the Federal Arbitration Act (FAA) could deprive a court of that power.  Capouillez immediately appealed the circuit court's denial of his motions to compel arbitration as interlocutory orders.

In reversing the circuit court's ruling in each of the three cases, the Supreme Court recognized that, under the FAA, an agreement to arbitrate is a contract and that the rights and liabilities of parties to such an agreement are controlled by the state law of contracts.  As such, courts are required to honor contracting parties' expectations and compel arbitration.  More importantly, a circuit court may not avoid enforcement of an arbitration clause "save upon such grounds as exist at law or in equity for the revocation of any contrac t."  Consequently, where a state statute, rule, or common-law doctrine targets arbitration provisions for disfavored treatment in such a way that is not usually applied to other types of contract provisions, then that statute, rule, or common-law doctrine "stands as an obstacle to the accomplishment and execution of the purposes and objectives of the Federal Arbitration Act and is preempted."  Stated succinctly, where state law prohibits outright the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA.  Thus, because the circuit court targeted the arbitration agreements for disfavored treatment due to the nature of the claims themselves, the Supreme Court found that the circuit court's conflicting rule was displaced and preempted by the FAA.

What It Means to You

The Supreme Court's decision in this case builds upon the court's recent trend towards greater enforcement of arbitration agreements.  This trend is a marked departure from the Supreme Court's earlier decisions which had the effect of curtailing the enforceability of such agreements.  While the Supreme Court's decision in this case underscores the fact that arbitration agreements are to be analyzed solely based upon the law of contracts in all situations, this decision will perhaps have the greatest impact in the area of consumer arbitration agreements which are current targets for disfavored treatment.