South Carolina BAR Journal
SC Lawyer, March 2012, #3.
The Outrageous Conduct Exception to Arbitration Clauses
South Carolina LawyerMarch 2012The Outrageous Conduct Exception to Arbitration ClausesBy James L. ("Lee" Floyd III and Brian ComerThe perceived burdens and benefits of arbitration remain subject to intense debate. Regardless of whether a practitioner views arbitration as a fair and efficient means of resolving disputes or as a mechanism that deprives litigants of the right to a jury trial, it is important to remain knowledgeable of recent developments concerning the enforcement of arbitration agreements. Increasing burdens on courts and scarce judicial resources led federal and state legislators to codify a public policy favoring the enforcement of arbitration agreements. See Federal Arbitration Act, 9 U.S.C. 1-16 (2011); South Carolina Uniform Arbitration Act, S.C Code Ann. 15-48-10 to -240 (1978).
Despite this clear policy, the presence of a valid arbitration clause and a dispute within its provisions does not always mean the matter will go to arbitration. In 2007, the S.C. Supreme Court recognized what can be referred to as the "outrageous conduct" exception to the enforcement of arbitration clauses. Aiken v. World Finance Corp. of S.C., 373 S.C. 144, 151, 644 S.E.2d 705, 709 (2007).
The basic exception is fairly simple: a S.C. court should "refuse to interpret any arbitration agreement as applying to outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings." Id. While simple to state, the true breadth of this exception is less clear.
This article provides a brief overview of the Court's decision in Aiken and some observations on several recent cases that interpret and apply the outrageous conduct exception under South Carolina law.
The adoption of the outrageous conduct "rule:" Aiken v. World Finance Corp. of S.C.
In Aiken, the Court considered whether to enforce an arbitration clause where the conduct alleged by the Complaint was particularly egregious. Aiken had entered into a series of consumer loans with the defendants. Two years after Aiken had paid off his final loan with the defendants, employees of the defendants used Aiken's personal information to take out other loans in his name and embezzle the proceeds. 373 S.C. at 147, 644 S.E.2d at 707. Each of the loan agreements contained a conspicuous and broadly-worded arbitration clause. The arbitration clause encompassed any and all disputes, controversies or claims relating to any loan agreement or any prior or future dealings between the parties. Id.
Aiken's Complaint asserted multiple tort law claims, including actions for outrage, unfair trade practices and other negligence based claims. Defendants answered and also moved to compel arbitration. The trial court denied defendants' motion. It concluded Aiken's claims arose from conduct independent from the loan agreement because the misconduct did not take place until after Aiken had satisfied his last loan. Therefore, the arbitration clause did not encompass Aiken's claims.
On appeal, the Aiken Court recites the basic law that state and federal law favors arbitration and that arbitration agreements are subject to the same rules as other contracts. These rules limit arbitration clauses to only those disputes the parties agreed to submit to arbitration. The Aiken Court addressed whether the arbitration clause at issue included the claims...