846 S.E.2d 874
S.C. Ct. App.2020Background
- In 2011 Jane Doe bought a car from TCSC, LLC (Hendrick Toyota) and signed a one‑page arbitration agreement among other closing documents.
- In 2015 a dealership salesman posted an ad impersonating Doe on an explicit website using her contact information; Doe received harassing calls/texts and sued the dealership under respondeat superior for employee misconduct.
- Dealer moved to compel arbitration under the 2011 Arbitration Agreement, which broadly required arbitration of any claim “arising out of or relating to” the purchase or any “resulting transaction or relationship (including any such relationship with third parties).”
- The circuit court denied the motion, finding the Agreement unconscionable; Dealer appealed to the Court of Appeals.
- The Court of Appeals held the question of the Agreement’s validity is for the court (not the arbitrator) because the delegation clause did not clearly and unmistakably assign validity challenges to an arbitrator.
- The court affirmed unconscionability only as to the expansive clause binding future disputes and third parties, severed that language, and remanded to compel arbitration on the revised Agreement so the arbitrator can decide scope/arbitrability; the dissent would apply the "outrageous and unforeseeable torts" exception to bar arbitration.
Issues
| Issue | Plaintiff's Argument (Doe) | Defendant's Argument (Dealer) | Held |
|---|---|---|---|
| Who decides gateway validity/enforceability of the arbitration agreement? | Court should decide because validity goes to the making of the arbitration agreement. | Delegation clause (referring to "interpretation and scope" and "arbitrability") clearly commits gateway issues to arbitrator. | Court: validity is for the court; delegation clause did not clearly and unmistakably delegate validity. |
| Whether the Arbitration Agreement is unconscionable/valid under SC law | Agreement is adhesive, presented on a take‑it‑or‑leave‑it basis to an unsophisticated consumer; terms are one‑sided and oppressive. | Agreement is presumptively valid under FAA and typical consumer arbitration precedents. | Court: Agreement generally valid but unconscionable as to the clause requiring arbitration of any dispute arising from any "resulting transaction or relationship (including third parties)". |
| Whether the unconscionable clause should be severed or void the whole agreement | Whole agreement should be unenforceable given adhesive nature and overbroad reach. | Severability clause preserves the remainder if an offending term is struck. | Court: Severed the overbroad "resulting transaction or relationship (including third parties)" language; remainder survives. |
| Who decides whether Doe's specific claims fall within the (revised) arbitration agreement; applicability of the "outrageous and unforeseeable torts" exception | Doe: her claims (identity misuse/sexual‑ad posting) are unforeseeable outrageous torts and not within the scope. | Dealer: arbitrator should decide arbitrability/scope under delegation clause. | Court: Because delegation clause clearly committed interpretation/scope and arbitrability to arbitrator, arbitrator must decide whether Doe's claims are covered (majority). Dissent would apply the exception and deny arbitration. |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (separates arbitration clause from broader contract; arbitrator decides some contract challenges unless challenge goes to formation of arbitration clause)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (courts presumptively decide gateway issues absent clear and unmistakable delegation)
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clause can assign arbitrator power to decide enforceability, but a party may challenge the delegation clause specifically)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (courts must enforce clear delegation clauses and may not apply a "wholly groundless" exception)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (distinguishes gateway questions for courts vs. arbitrators and clarifies arbitrability components)
- Kindred Nursing Ctrs. Ltd. P'ship v. Clark, 137 S. Ct. 1421 (2017) (arbitration agreements are subject to generally applicable contract defenses like unconscionability)
- Aiken v. World Fin. Corp. of S.C., 373 S.C. 144 (2007) (South Carolina recognizes an "outrageous and unforeseeable torts" exception to arbitration scope)