Arbitration – Commonwealth isn’t bound by arbitration provision

Where the Commonwealth Attorney General sued various defendants for deceptive conduct in connection with the sales of residential solar panels, it was not bound by an arbitration agreement in the underlying sales agreements.

Background

This case arises from the defendants’ alleged pattern of deception of Virginia consumers relating to their purchase of residential solar panels from Power Home Solar LLC. The defendants are executives of the company that sold the solar panels, and the lenders who provided loans to the consumers for the purchase of the solar panels.

Waller and Klink were the CEO and CFO of Power Home Solar. They are named only in Counts One and Four. They filed a motion to compel arbitration. They claim that the agreements between Power Home Solar and the consumers require arbitration.

Analysis

Waller and Klink argue this court should send this matter to arbitration to determine arbitrability. The Fourth Circuit‘s clear directive on this issue ends the inquiry. However, according to Waller and Klink, because plaintiffs do “not mount a specific challenge to the enforceability of the delegation clause,” but focus on the lack of contract between the parties, the court should treat the delegation clause as undisputed and send the case to arbitration.

The decision upon which they rely, however, addresses an entirely different issue – when a party to a contract seeks to avoid arbitration because of a contract defense affecting the entire contract and not specifically affecting the arbitration clause. That is just not the situation here. Here, this court must first decide whether a nonparty may enforce an arbitration agreement against another nonparty, here a state government. Under binding Fourth Circuit precedent, that question is a question for this court, not the arbitrator.

The question in this case is whether a non-party to an arbitration agreement can enforce an arbitration agreement against a state government who is also a non-party to the agreement. They cannot. In E.E.O.C. v. Waffle House, Inc., 534 U.S. 279 (2002), the Supreme Court held that an arbitration agreement between an employer and employee did not bind the E.E.O.C. to arbitrate an enforcement action against the employer.

The court noted that the E.E.O.C. was not a party to the contract, and that “[i]t goes without saying that a contract cannot bind a nonparty.” The Supreme Court recognized that E.E.O.C. sought only victim-specific relief, but found that nonetheless, the E.E.O.C. was vindicating the public interest and would not be held to an arbitration agreement it did not make.

And, under Virginia law, the Waffle House principle applies when a state government seeks victim-specific relief to vindicate the public interest. The Supreme Court of Virginia held that because the Commonwealth of Virginia was not party to an arbitration agreement, it was not bound to arbitrate under the Federal Arbitration Act, or FAA, or under state contract law principles.

Waller and Klink argue that the Commonwealth is “essentially an assignee” of the consumers and thus are held to the agreements that the consumers made. However, the Commonwealth is not an assignee. The Commonwealth has a statutory right to enforce consumer protection law separate and apart from any right under a contract. Waller and Klink cite no on-point case law supporting their argument.

Waller and Klink also suggest that they could enforce the arbitration agreement against consumers. However, that issue need not be reached because, even if they could enforce the arbitration agreement against the consumers, they cannot against the Commonwealth.

Motion to compel arbitration denied.

Commonwealth of Virginia ex rel Jones v. Waller, Case No. 3:26-cv-39, May 28, 2026. EDVA at Richmond (Payne). VLW 026-3-233. 7 pp.

Full-Text Opinion

VLW 026-3-233