South Carolina Lawyer
SC Lawyer, September 2008, #1.
Arbitration: Alive and Delivering Results in South Carolina
South Carolina LawyerSeptember 2008Arbitration: Alive and Delivering Results in South CarolinaBy Thad H. Westbrook and A. Mattison BoganThe prevalence of arbitration as a method of dispute resolution has increased dramatically in the United States since the mid-1990s. See Quantitative Economics and Statistics Practice, Ernst & Young, Outcomes of Arbitration: An Empirical Study of Consumer Lending Cases 4 (2005). This trend continued last year as the American Arbitration Association reported a 46 percent increase in commercial arbitration filings. See AAA's Commercial Caseload Up 46 Percent in 2007, Dispute Resolution Times, June 16, 2008. As the prevalence of arbitration actions expands, so does the number of cases interpreting and enforcing arbitration statutes. For many years, South Carolina's courts, and other courts throughout the United States, were antagonistic to arbitration and were hesitant to compel parties to arbitrate. See David S. Clancy & Matthew M.K. Stein, An Uninvited Guest: Class Arbitration and the Federal Arbitration Act's Legislative History, 63 Bus. Law. 55, 58 (Nov. 2007). However, after the adoption of the Federal Arbitration Act (FAA) and the South Carolina Uniform Arbitration Act (SCUAA), the U.S. Supreme Court and the S.C. Supreme Court have developed a body of case law adopting strong policies in favor of arbitration.
This area of the law continues to develop, which is evident from a handful of decisions filed by the S.C. Supreme Court last year and discussed below. See Aiken v. World Fin. Corp. of S.C., 373 S.C. 144, 644 S.E.2d 705 (2007); Simpson v. World Fin. Corp. of S.C., 373 S.C. 178, 644 S.E.2d 723 (2007); Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 644 S.E.2d 663 (2007); Chassereau v. Global-Sun Pools, Inc., 373 S.C. 168, 644 S.E.2d 718 (2007). In these decisions, the Court reaffirms its strong polices favoring the enforcement of arbitration agreements, but they also reveal that the Court will continue to examine the use of these agreements and the circumstances surrounding the parties' execution of the agreements. Therefore, any attorney advising clients about drafting, using or enforcing arbitration agreements should study the development of arbitration case law in South Carolina and take note of the Court's most recent decisions. This article seeks to aid in that effort by offering a brief review and update of arbitration decisions in South Carolina.
Early history of arbitration in South Carolina
South Carolina's earliest residents utilized arbitration as a form of dispute resolution, and its courts have always been empowered to enforce arbitration agreements. See, e.g, Delesline v. Greenland, 1 S.C.L. 458 (S.C. Com. Pl. Gen. Sess. 1795). Recognition and enforcement of arbitration agreements was a part of English common law tradition, which first evolved from secular and ecclesiastical courts as early as the 13th century. See Edward Powell, Settlement of Disputes by Arbitration in Fifteenth-Century England, 2 Law & Hist. Rev. 21, 25 (1984). Because South Carolina's law is derived from English common law, the state also adopted English rules permitting and enforcing arbitration agreements. See Bishop v. Valley Falls Mfg. Co., 78 S.C. 312, 58 S.E. 939 (1907). However, "[i]n early times the disposition of the courts was to look with jealousy on arbitrations, and give them as little force as possible . . . " Id. South Carolina courts were wary of agreements that took the dispute outside the rule of the court, and the S.C. Supreme Court previously explained that "[i]t is well established in South Carolina that general arbitration agreements which oust the South Carolina circuit court from jurisdiction are unenforceable as against public policy." Episcopal Housing Corp. v. Federal Ins. Co., 269 S.C. 631, 636, 239 S.E.2d 647, 649 (1977) (citing Childs v. Allstate Insurance Co., 237 S.C. 455, 117 S.E.2d 867 (1961)). The Court followed that statement by saying that "[i]t is equally true, however, that under the supremacy clause of the United States Constitution, Article VI, Clause 2, this Court must recognize that federal statutes enacted pursuant to the U.S. Constitution are the supreme law of the land. The Federal Arbitration Act was enacted pursuant to the commerce clause, thereby superseding the South Carolina common law." Id. at 636, 239 S.E.2d at 649.
Development of arbitration law in the United States and South Carolina
Although South Carolina's courts historically viewed arbitration agreements with skepticism, the current sentiment favoring arbitration indicates times have changed. The general judicial dislike for arbitration is what led many states, including South Carolina in 1978, to follow Congress and create statutes empowering agreements to arbitrate. See Bishop, 78 S.C. at 315-16, 58 S.E.2d at 940. Indeed, the S.C. Supreme Court has acknowledged that the "basic purpose of the FAA is to overcome state courts' refusal to enforce arbitration agreements." Zabinski v. Bright Acres Assoc., 346 S.C. 580, 590-91, 553 S.E.2d 110, 115 (2001) (citing Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (1995)).
Today, arbitration agreements in South Carolina are governed by the Uniform Arbitration Act, S.C. Code Ann. §§ 15-48-10, et seq., and the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. The S.C. Supreme Court has recognized this link between the SCUAA and FAA because the applicability of the state act is impacted by the implementation and interpretation of the federal act in resolving disputes over questions of arbitration. Soil Remediation Co. v. Nu-Way Envtl., 323 S.C. 454, 476 S.E.2d 149 (1996). Given the federalization of arbitration, South Carolina's courts must examine the applicability of the FAA. For example, South Carolina courts, before and after the adoption of the FAA, held "[t]he Federal Arbitration Act supersedes the South Carolina common law rule that arbitration agreements are unenforceable as contracts to oust the courts of jurisdiction." Plaza Develop. Servs. v. Joe Harden Builder, Inc., 296 S.C. 115, 118, 370 S.E.2d 893, 895 (Ct. App. 1988) (citing Episcopal Housing Corp. v. Federal Ins. Co., 269 S.C. 631, 239 S.E.2d 647 (1977)), overruled on other grounds by Link v. School Dist., 302 S.C. 1, 393 S.E.2d 176 (1990).
South Carolina took its lead from the U.S. Congress, which adopted the FAA in 1924. In doing so, Congress explained that "[t]he desire to avoid the delay and expense of litigation persists. The desire grows with time and as delays and expense increase. The settlement of disputes by arbitration appeals to big business and little business alike, to corporate interests as well as to individuals." See S. Rep. No. 68-536, at 3 (1924). Similar to the approach taken by South Carolina's early courts, the enactment of the FAA did not immediately change the court system's attitude toward arbitration agreements. However, starting in the mid-1980s, decisions from the U.S. Supreme Court made it clear that the FAA's impact was far and wide. See Linda R. Hirshman, The Second Arbitration Trilogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305 (1985) (explaining the Supreme Court's fulfillment of the promise to expand the ambit of the FAA with its decisions in Moses H. Cone Mem'l Hospital v. Mercury...