Bradley v. Brentwood Homes, Inc.

• Decision Date: 11 July 2012
• Docket Number: No. 27143.,No. 2010–163350.,27143.,2010–163350.
• Citation: 730 S.E.2d 312,398 S.C. 447
• Court: South Carolina Supreme Court
• Parties: Fred BRADLEY, Respondent, v. BRENTWOOD HOMES, INC., Brentwood Homes–Limehouse, LLC, Brentwood Homes–The Retreat at Johns Island, LLC, Brentwood Homes of South Carolina, Inc., Brentwood Homes of North Carolina, Inc., Brentwood Homes of Myrtle Beach, Inc., Brentwood Homes of Low Country, Inc., Brentwood Homes of Fort Mill, Inc., Brentwood Homes of Beaufort–Bluffton, Inc., Harris Street, LLC, Crescent Homes of SC, Inc., Brentwood Homes Incorporated, a Georgia Corporation, Appellants.

398 S.C. 447

730 S.E.2d 312

Fred BRADLEY, Respondent,

v.BRENTWOOD HOMES, INC., Brentwood Homes–Limehouse, LLC, Brentwood Homes–The Retreat at Johns Island, LLC, Brentwood Homes of South Carolina, Inc., Brentwood Homes of North Carolina, Inc., Brentwood Homes of Myrtle Beach, Inc., Brentwood Homes of Low Country, Inc., Brentwood Homes of Fort Mill, Inc., Brentwood Homes of Beaufort–Bluffton, Inc., Harris Street, LLC, Crescent Homes of SC, Inc., Brentwood Homes Incorporated, a Georgia Corporation, Appellants.

No. 27143.

No. 2010–163350.

Supreme Court of South Carolina.

Heard May 22, 2012.

Decided July 11, 2012.

Robert T. Lyles, Jr., of Charleston, for Appellants.

W.W. DesChamps, Jr. and William Wayne DesChamps, III, both of Myrtle Beach, SC, for Respondent.

Justice BEATTY.

Brentwood Homes, Inc. and the other appellants (collectively “ Brentwood Homes”) appeal the circuit court's order denying a motion to stay the proceedings and compel arbitration in a lawsuit filed by Fred Bradley that arose out of his purchase of a home in South Carolina. Although Brentwood Homes concedes the Home Purchase Agreement does not meet the technical requirements of the South Carolina Uniform Arbitration Act (the “UAA”), ¹ it claims the court erred in denying the motion because the transaction involved interstate commerce and, thus, was subject to the Federal Arbitration Act (“FAA”).² We affirm.

I. Factual/Procedural History

On January 31, 2007, Bradley and Brentwood Homes entered into a Home Purchase Agreement (the “Agreement”) for the purchase of a home located in North Myrtle Beach, South Carolina. In the Agreement, Bradley and his wife were designated as the purchasers and Brentwood Homes was designated as the seller. Pursuant to the Agreement, Bradley agreed to purchase a completed dwelling wherein Brentwood Homes acted as a seller of the completed dwelling rather than as a contractor for the construction of the dwelling.³ The closing of the home took place on March 2, 2007.

On July 31, 2009, Bradley initiated a lawsuit against Brentwood Homes in which he alleged numerous construction defects in the dwelling. In his Complaint, Bradley identifiedcauses of action for fraud, negligence, and breach of implied warranty.

After six months of discovery requests by Bradley, Brentwood Homes filed an Amended Answer and Counterclaim on February 5, 2010. In this responsive pleading, Brentwood Homes claimed the circuit court did not have jurisdiction to rule on Bradley's lawsuit as the Agreement provided for arbitration. Brentwood Homes concurrently filed a motion to stay the proceedings and compel arbitration.

In support of this motion, Brentwood Homes referenced subsection 14G in the Agreement, which provides in relevant part:

Mandatory Binding Arbitration.⁴ Purchaser and Seller each agree that, to the maximum extent allowed by law, they desire to arbitrate all disputes between themselves. The list of disputes which shall be arbitrated in accordance with this paragraph include, but are not limited to: (1) any claim arising out of Seller's construction of the home, (2) Seller's performance under any Punch List or Inspection Agreement, (3) Seller's performance under any warranty contained in this Agreement or otherwise, and (4) any matters as to which Purchaser and Seller agree to arbitrate.

Alternatively, Brentwood Homes claimed that even if the arbitration provision in the Agreement did not comply with the requirements of the UAA,⁵ it was subject to the FAA as the transaction involved interstate commerce. Specifically, Brentwood Homes claimed the Agreement “on its face involves interstate commerce” as it provides that the Seller will purchase a warranty from 2–10 HBW Warranty,⁶ or such other national warranty, and that claims would be submitted to the East Region of 2–10 HBW, which is located in Tucker, Georgia. Additionally, Brentwood Homes supplemented its motion with affidavits from Bradley and Edward M. Terry, who was the Vice–President of Brentwood Homes on January [398 S.C. 452]31, 2007.⁷ Bradley's affidavit established that the home purchase was financed by a North Carolina branch of JPMorgan Chase Bank & Co. In his affidavit, Terry attested that Brentwood Homes “used subcontractors, materials and suppliers from outside of the State of South Carolina” in the construction of Bradley's home.

At the hearing before the circuit court, Bradley initially opposed the motion to compel arbitration on the ground Brentwood Homes waived the right to assert the affirmative defense due to its delay in responding to discovery requests. Regarding the merits, Bradley claimed the arbitration clause in the Agreement did not satisfy the statutory requirements of the UAA as it was not on the first page of the Agreement and was not identified by capital letters and underlining. Alternatively, Bradley asserted the Agreement was not subject to the FAA because it was “just a general contract to purchase and sell the home” and, thus, did not involve interstate commerce. Bradley objected to Brentwood Homes' reliance on Terry's affidavit to support its claim that the transaction involved interstate commerce as Terry had no direct involvement with the home purchase. At the conclusion of the hearing, the court orally denied the motion to stay the proceedings and compel arbitration.

By written order, the court found the Agreement did not comply with the statutory requirements of the UAA. In turn, the court assessed whether the Agreement was subject to the FAA. In making this determination, the court considered the terms of the Agreement, the pleadings and motions, the affidavits and accompanying documents, and the arguments of counsel. The court found the Agreement “does not refer to equipment and materials to be furnished from outside the state of South Carolina, nor does it list any subcontractors which were outside the confines of this state.” The court also discounted Terry's affidavit based on discovery responses, which indicated that Terry did not deal directly with Bradley. Ultimately, the court held the Agreement was not subject to the FAA as Brentwood Homes had “not submitted sufficient evidence to demonstrate that the transaction between [Bradley and Brentwood Homes] involved interstate commerce.”

Brentwood Homes appealed the order to the Court of Appeals. This Court certified the appeal from the Court of Appeals pursuant to Rule 204(b), SCACR.

II. Discussion

A.

We begin our analysis with a general discussion of our appellate courts' interpretation and application of the FAA.

“Arbitrability determinations are subject to de novo review.” Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 22, 644 S.E.2d 663, 667 (2007). “Nevertheless, a circuit court's factual findings will not be reversed on appeal if any evidence reasonably supports the findings.” Id.

Brentwood Homes concedes the Agreement does not meet the technical requirements of section 15–48–10(a) of the UAA as the arbitration provision is not underlined and does not appear on the first page of the contract. This concession, however, is not dispositive. Because an application of the South Carolina law would have rendered the parties' arbitration agreement completely unenforceable, consideration of the applicability of the FAA is required. The FAA is intended to ensure that arbitration will proceed in the event a state law would have preclusive effect on an otherwise valid arbitration agreement. See Marmet Health Care Ctr., Inc. v. Brown, ––– U.S. ––––, ––––, 132 S.Ct. 1201, 1203, 182 L.Ed.2d 42 (2012) (“[W]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” (quoting AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1747, 179 L.Ed.2d 742 (2011))); Volt Info. Scis. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (stating that “the federal policy [of the FAA] is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate”).

Thus, although the parties were free to agree that our state arbitration act would apply, the FAA would preempt an application of our state law to the extent it invalidated the arbitration agreement, if interstate commerce is involved. See Zabinski v. Bright Acres Assocs., 346 S.C. 580, 592, 553 S.E.2d 110, 116 (2001) (“While the parties may agree to enforce arbitration agreements under state rules rather than FAA rules, the FAA will preempt any state law that completely invalidates the parties' agreement to arbitrate.”); Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 539 n. 2, 542 S.E.2d 360, 363 n. 2 (2001) (“State law was therefore preempted to the extent it would have invalidated the arbitration agreement. The parties to a contract are otherwise free to agree that our state Arbitration Act will apply and this agreement shall be enforceable even if interstate commerce is involved.” (second emphasis added)); Soil Remediation Co. v. Nu–Way Envtl., Inc., 323 S.C. 454, 476 S.E.2d 149 (1996) (holding that FAA displaced South Carolina notice-requirement statute, which would have precluded arbitration, where parties agreed to arbitration and the transaction involved interstate commerce).

The FAA provides: “A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C.A. § 2. Therefore, in order to activate the application of the FAA, the commerce involved in the contract must be interstate or foreign. 2 S.C. Jur. Arbitration § 6 (Supp.2012) ( “Interstate commerce is a necessary basis for application of the federal act, and a contract or agreement not so predicated must be governed by state law. To activate...