844 S.E.2d 66
S.C. Ct. App.2020Background
- Homeowners sued Lennar (general contractor), the developer, and many subcontractors for allegedly defective construction in a Berkeley County development.
- Each new-home purchaser (except one second-owner) signed a ten‑page Purchase and Sale Agreement (PA) that contained a distinct "Mediation/Arbitration" section invoking the Federal Arbitration Act (FAA) and stating the transaction "involves interstate commerce."
- Lennar moved to compel arbitration of the disputes and impleaded additional subcontractors as third‑party defendants.
- The circuit court denied Lennar's motion, ruling the arbitration language was inseparable from warranty/deed/covenant provisions, found the combined agreement unconscionable, and held the South Carolina Uniform Arbitration Act (SCUAA) — not the FAA — governed because SCUAA conspicuous‑notice requirements were not met.
- Lennar appealed. The Court of Appeals concluded the FAA applies (party invocation + commerce in fact via out‑of‑state contractors/materials), the PA’s arbitration clause is separable and valid, and the clause delegates questions of arbitrability to the arbitrator.
- The Court reversed the denial of Lennar’s motion to compel arbitration, remanding only for rulings on Lennar’s separate motions to compel the subcontractors/developer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAA or SCUAA governs | SCUAA governs; FAA not triggered and notice requirements unmet | FAA governs because PA expressly invokes interstate commerce and transaction involves interstate commerce | FAA governs (party invocation + commerce in fact: out‑of‑state materials/contractors) |
| Whether the arbitration clause is separable and enforceable | Arbitration language inseparable from other warranty/deed/covenant provisions; whole agreement unconscionable | Arbitration is a distinct PA section and is severable under Prima Paint/Buckeye | Arbitration clause is separable and valid; court erred by considering other documents together |
| Who decides arbitrability (court or arbitrator) | Plaintiffs: arbitrability for court to decide | Lennar: PA contains clear delegation; arbitrator decides arbitrability | Delegation clause is clear and unmistakable; arbitrator decides arbitrability |
| Whether unconscionability/notice defects preclude arbitration | SCUAA conspicuous‑notice failure and unconscionability bar enforcement | Any contract‑wide challenges go to the arbitrator unless they directly target the arbitration clause | FAA requires enforcement; contract‑wide challenges are for arbitrator; court's unconscionability/notice rulings reversed |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (establishes severability doctrine for arbitration clauses)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (arbitration clause is separable; challenges to contract as a whole go to arbitrator)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (courts must enforce clear delegation clauses; arbitrator decides delegated arbitrability)
- Munoz v. Green Tree Fin. Corp., 343 S.C. 531 (parties’ agreement that transaction involves interstate commerce can bring FAA into play)
- Cape Romain Contractors, Inc. v. Wando E., LLC, 405 S.C. 115 (use of out‑of‑state materials/contractors can demonstrate commerce in fact)
- Bradley v. Brentwood Homes, Inc., 398 S.C. 447 (residential real‑estate sales are typically intrastate, but construction contracts can invoke FAA)
- Rent‑A‑Center, W., Inc. v. Jackson, 561 U.S. 63 (party challenges to the contract as a whole do not avoid arbitration of issues governed by the arbitration clause)
- One Belle Hall Prop. Owners Ass'n, Inc. v. Trammell Crow Residential Co., 418 S.C. 51 (reversing denial of arbitration where court improperly combined separate warranty into arbitration agreement)