363 F. Supp. 3d 632
D.S.C.2019Background
- Berkeley County School District alleges former CFO Brantley Thomas conspired with HUB and HUB employees (the Pokorneys) to steer the District into buying unnecessary/excessive insurance and to pay commissions and sham fees; Thomas pleaded guilty to related state and federal charges.
- The Insurance Defendants relied on multiple Brokerage Service Agreements (2002–2011) that contain AAA-based arbitration clauses; the District claims it never saw or agreed to many of those agreements.
- District filed RICO and fraud-based claims in federal court (after criminal convictions of Thomas); HUB moved to compel arbitration under the Arbitration Clauses.
- Defendants argued the Arbitration Clauses (incorporating AAA rules) delegate arbitrability to the arbitrator; District argued it never formed any agreement to arbitrate and that Thomas acted beyond the scope of his authority.
- The court held a two-step arbitrability analysis and, applying South Carolina contract-formation law, found no meeting of the minds for the Brokerage Service Agreements and that Thomas acted outside the scope of his employment in furtherance of his own fraud.
- Court denied the motion to compel arbitration because no valid agreement to arbitrate was formed binding the District.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an agreement to arbitrate was formed | District: never saw or agreed to the Brokerage Service Agreements; many unsigned; payments resulted from Thomas's fraud | HUB: District accepted terms by performance; AAA rules incorporated show intent to arbitrate arbitrability | Court: No agreement formed; unsigned agreements and payments caused by Thomas's fraud do not bind District |
| Whether Thomas bound the District by signing/accepting agreements | District: Thomas acted outside scope of employment for personal kickbacks, so his acts aren't imputed | HUB: Thomas (as CFO) had ostensible authority to bind District | Court: Thomas acted for personal fraud, outside scope of employment, so his acts do not bind District |
| Whether incorporation of AAA rules shows clear and unmistakable delegation of arbitrability | District: cannot rely on clause text to show intent when District contends it never agreed to the clause | HUB: incorporation of AAA rules (R-7) demonstrates clear and unmistakable intent to delegate arbitrability to arbitrator | Court: Where formation is disputed, one cannot use the text of an allegedly unformed agreement to prove delegation; no clear and unmistakable delegation when the party disputes formation |
| Whether court must decide formation before sending any arbitrability question to arbitrator | District: court must decide whether any agreement exists under state contract law | HUB: AAA incorporation delegates threshold arbitrability questions to arbitrator | Court: Court must determine whether parties formed an agreement to arbitrate (may consider container contract); here it did and found none |
Key Cases Cited
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (clarifies severability and distinction between validity and formation of arbitration agreements)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (distinguishes challenges to arbitration-clause validity from challenges to the container contract)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (courts apply state-law contract-formation principles to whether parties agreed to arbitrate)
- Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (court must resolve formation/applicability issues before compelling arbitration)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (rejects “wholly groundless” exception; decision limited here because it addresses scope, not formation)