Attorneys’ fees severable from arbitration agreement

A clause in an arbitration agreement awarding attorneys’ fees to the prevailing party can be severed, because the Virginia Values Act only entitles a plaintiff to an award of attorneys’ fees, the Western District of Virginia has ruled.

As a result, a remote worker’s wrongful termination claims must be submitted to arbitration pursuant to her employment agreement.

The plaintiff argued the attorneys’ fees provision was invalid and the severability provision was an overreach. Those provisions invalidated the entire agreement and the arbitration requirement, she contended.

U.S. District Judge Norman K. Moon disagreed.

“[T]he severability provision and attorneys’ fees provisions are severable from the contract, and Defendant has not waived its right to compel arbitration,” the judge pointed out. “Thus, the arbitration agreement is enforceable.”

The opinion is Smith v. Ironworks Development LLC (VLW 022-3-477).

Termination suit

Rhonda Smith was employed by Ironworks Development as an executive assistant. She worked in a fully remote capacity. According to Smith, Ironworks rejected her request for accommodation from its COVID-19 vaccination policy based on her religious beliefs.

In July 2021, Ironworks suspended and then terminated Smith for failure to comply with its policy. Smith sued under Title VII of the Civil Rights Act and the Virginia Values Act for disparate treatment, disparate impact and discriminatory classification.

Ironworks moved to dismiss, citing the agreement to arbitrate in Smith’s employment agreement.

Smith argued that the employment agreement’s severability and attorneys’ fee provisions were invalid and contributed to the arbitration provision being unenforceable. She also claimed Ironworks had waived its right to compel arbitration.

Overreach

According to Smith, there was no mutual assent to the arbitration provision in her employment agreement and thus no valid contractual relationship between the parties as to the provision.

Specifically, she said the portion of the severability provision that allows for automatically adding “a provision as similar in terms to the questioned provision as possible” was an overreach that prevented a meeting of the minds on the exact and definite terms of the agreement.

Moon said that “‘[s]everability clauses are valid — but only to the extent applying [them] do[es] not violate Virginia’s prohibition concerning blue-penciling,’ i.e., the rewriting of contract provisions after contract acceptance.”

He wrote that “the Fourth Circuit has recognized that district courts must consider whether severance of an unenforceable provision ‘rather than invalidation of the arbitration agreemen[t], would be the appropriate remedy.’”

Noting that Ironworks didn’t ask the court to rewrite any contractual language, Moon found that severing the contested portion of the severability provision didn’t render the entire contract unenforceable.

“Both parties indicated mutual assent by signing the employment agreement, therein agreeing to the terms as written,” he wrote. “The Court need not worry about a future concern of blue-penciling at this time.”

Attorneys’ fees

Smith contended the attorneys’ fees provision in the agreement violated the public policy in Title VII against assessment of fees against an unsuccessful claimant as a matter of course, thereby rendering the entire agreement void.

The provision stated that “[t]he non-prevailing party in arbitration … will be fully responsible for and pay the prevailing Party’s reasonable attorney’s fees, costs, and expenses,” regardless of whether the plaintiff or defendant prevails in a Title VII suit.

She further argued that the attorneys’ fees provision was unenforceable because the Virginia Values Act only entitles a plaintiff to an award of attorneys’ fees, and state law provides no right for fees to a prevailing defendant.

Moon agreed the provision was likely unenforceable.

“But this provision is severable, as, like the attorneys’ fees provision in Reistroffer [v. Person] it is not integral to the Parties’ agreement,” the judge wrote. “Thus, it does not invalidate the arbitration agreement.”

The attorneys’ fee provision was severed, and the court instructed “any arbitrator to follow the traditional Christiansburg Garment Co. [v. EEOC] and Hensley [v. Eckerhart] attorneys’ fee provision rules for the Title VII claim, as well as the relevant state rules governing state law claims.”

Waiver

Finally, Smith asserted that Ironworks’ discovery requests weren’t permitted under the rules of arbitration and, therefore, were prejudicial and constituted a waiver of the ability to compel arbitration.

Moon rejected this argument as it failed to meet the high standard for showing actual prejudice.

“A party waives its right to compel arbitration when it ‘so substantially utilizes the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay,’” the judge wrote. “‘[E]ven in cases where the party seeking arbitration has invoked the ‘litigation machinery’ to some degree, ‘[t]he dispositive question is whether the party objecting to arbitration has suffered actual prejudice’ … [which] is a ‘heavy burden.’”

Here, the judge found that Ironworks moved to compel arbitration about four months after the case began. He noted that the 4th U.S. Circuit Court of Appeals previously has found no inherent prejudice in delays of similar time spans.

Moon also rejected Smith’s argument that she was prejudiced by responding to Ironworks’ interrogatories, document requests and requests for admissions, and that the rules of arbitration didn’t permit such discovery.

“The Fourth Circuit has recognized that discovery is not prejudicial when a moving party completed depositions ‘before any suggestions of arbitration had been made’ and the party ‘did not claim that the discovery it had obtained would impede it in arbitration,’” he wrote.

And while Smith claimed prejudice, Moon pointed out that “the Fourth Circuit has also held that ‘the party seeking arbitration will not lose its contractual right by prudently pursuing discovery in the face of a court-ordered deadline.’”

The judge concluded that Smith hadn’t established that she was prejudiced by Ironworks’ limited written discovery.

Having found no grounds for waiver, Moon granted Ironworks’ motion to compel arbitration.