791 S.E.2d 286
S.C.2016Background
- One Belle Hall Property Owners Association and a unit owner sued multiple construction parties, including Tamko, alleging roof shingles were defective and caused water/termite damage.
- Tamko had issued a 25-year limited warranty for its shingles containing a mandatory, page-five arbitration clause requiring AAA arbitration, a one-year suit limitation, and waivers/limitations of remedies subject to applicable law and a severability clause.
- The OBH developer initially submitted a warranty claim but failed to return Tamko’s warranty kit; Tamko inactivated the warranty.
- Respondents filed a proposed class action in 2012 and amended to add claims against Tamko in 2013; Tamko moved to compel arbitration and dismiss in 2014.
- The circuit court denied Tamko’s motion, finding the arbitration clause unconscionable and nonseverable due to oppressive, one-sided warranty provisions (relying on Simpson and D.R. Horton).
- Tamko appealed; the court of appeals reversed, holding the arbitration clause separable, not rendered unconscionable by the warranty’s remedial limitations (which are subject to state-law inapplicability and contain a severability clause), and that the clause permits neutral AAA arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clause | Clause is in an adhesion warranty and is unconscionable due to cumulative oppressive terms and waivers of remedies | FAA governs; arbitration clause is separable, contains neutral AAA process, and remedial limits are subject to state-law exceptions and severability | Reversed: arbitration clause enforceable; not unconscionable; separable from other warranty terms |
| Effect of warranty remedial limitations on arbitration | Limitations (waiver of consequential/ statutory remedies, one-year suit limit) make arbitration oppressive | Limitations include savings for jurisdictions that prohibit them and a severability clause; S.C. UCC permits many such limitations | Court held remedial limits do not render arbitration unconscionable because they would be inapplicable if state law forbids them and are severable |
| Prima Paint separability rule application | Arbitration clause must be read with surrounding warranty disclaimers limiting liability | Prima Paint requires courts to decide arbitrability of clause separate from contract’s overall validity | Court applied Prima Paint and treated arbitration clause as distinct and enforceable |
| Mutuality / neutrality of arbitration forum | Clause is one-sided (only consumer must arbitrate) and thus biased | In commercial distribution context Tamko rarely sues end-users; clause requires AAA rules, providing a neutral decisionmaker | Court found clause geared to neutral arbitration under AAA and lack of mutuality did not make it unconscionable |
Key Cases Cited
- Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 644 S.E.2d 663 (S.C. 2007) (defines unconscionability and voids an adhesion arbitration clause with one-sided remedial waivers)
- Smith v. D.R. Horton, Inc., 417 S.C. 42, 790 S.E.2d 1 (S.C. 2016) (upheld treating related contract subparagraphs together and invalidated arbitration where warranties and damage waivers rendered clause oppressive)
- D.R. Horton, Inc. v. Smith, 403 S.C. 10, 742 S.E.2d 37 (Ct. App. 2013) (court of appeals decision on arbitration unconscionability in home purchase contract)
- Zabinski v. Bright Acres Assocs., 346 S.C. 580, 553 S.E.2d 110 (S.C. 2001) (policy favoring arbitration; arbitrability is judicial question unless parties provide otherwise)
- Munoz v. Green Tree Financial Corp., 343 S.C. 531, 542 S.E.2d 360 (S.C. 2001) (FAA applies to contracts involving interstate commerce; arbitration clause separability)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (arbitration clause is separable from the contract and its validity is distinct from contract’s overall validity)