Cape Romain Contractors, Inc. v. Wando E., LLC

• Decision Date: 14 August 2013
• Docket Number: No. 27298.,27298.
• Parties: CAPE ROMAIN CONTRACTORS, INC., Respondent, v. WANDO E., LLC, and Sean Barnes, a/k/a Sean A. Barnes, Appellants. Appellate Case No. 2011–197207.
• Court: South Carolina Supreme Court

405 S.C. 115

747 S.E.2d 461

CAPE ROMAIN CONTRACTORS, INC., Respondent,

v.WANDO E., LLC, and Sean Barnes, a/k/a Sean A. Barnes, Appellants.

Appellate Case No. 2011–197207.

No. 27298.

Supreme Court of South Carolina.

Heard April 16, 2013.

Decided Aug. 14, 2013.

E.J. Westbrook and Catherine H. McElveen of Richardson Patrick Westbrook & Brickman, LLC, of Mt. Pleasant, for Appellants.

Albert A. Lacour, III, of Clawson & Staubes, LLC, of Charleston, for Respondent.

Justice KITTREDGE.

This case arises from a construction dispute. The contract between the general contractor and subcontractor provided for arbitration pursuant to the Federal Arbitration Act. When a complaint was filed, Appellant Sean Barnes, the general contractor, and Appellant Wando E., the property owner, sought to enforce the construction contract's arbitration clause. The trial court refused to compel arbitration on the basis that the contract did not sufficiently impact interstate commerce. We find the trial court erred in finding the parties' transaction had an insufficient nexus to interstate commerce and reverse.

I.

Appellant Wando E., LLC, owns property along the Wando River in Berkeley County, South Carolina. Wando E. retained Appellant Sean Barnes to serve as the general contractor for the construction of a marina. Barnes, in turn, hired Respondent Cape Romain as a subcontractor for the project. Barnes and Cape Romain entered into a standard form contract(the Contract) promulgated by the American Institute of Architects.

Section 5.1 of the Contract requires an affirmative election among various methods of dispute resolution. Parties must select arbitration, litigation in court, or “other.” Barnes and Cape Romain checked the box beside arbitration, selecting it as the binding method of dispute resolution for any subsequent claim. Specifically, article 21 of the Contract provides that all “[c]laims, disputes and other matters in question arising out of or relating to this Contract” shall be subject to arbitration. Further, section 19.2 of the Contract expressly provides that if arbitration is selected as the method of dispute resolution, the Federal Arbitration Act ¹ (FAA) shall govern the arbitration process.

Several months into construction, the project engineer refused to certify further payments, raising concerns about certain angled pilings and misaligned dock sections.² Cape Romain insisted it had properly constructed the docks and contended that any defects were the result of improperly manufactured prefabricated dock sections. Cape Romain demanded payment of $158,413.14 and filed a mechanics' lien against the real property to secure that amount. Thereafter, Cape Romain filed suit against Barnes and Wando E., seeking foreclosure of its mechanics' lien against Wando E. and alleging a breach of contract claim against Barnes.³

Appellants moved to dismiss and compel arbitration, arguing that because all of the claims relate to Cape Romain's performance under the Contract, the claims should be arbitrated. Cape Romain opposed dismissal and arbitration, arguing Wando E. was not a party to the Contract and, thus, may not compel arbitration and that the arbitration clause is not enforceable under the FAA because the transaction did not impact interstate commerce.

The trial court refused to dismiss the lawsuit or compel arbitration of any claim, finding performance of the Contract did not involve a sufficient impact on interstate commerce to “justify or trigger” application of the FAA. Further, the trial court found Wando E. could not enforce the arbitration agreement absent a showing of some special relationship to a contracting party. Appellants appealed, and the case was certified to this Court pursuant to Rule 204(b), SCACR.⁴

II.

Appellants argue the trial court erred in finding the arbitration provisions of the Contract cannot be enforced because the parties' transaction did not involve interstate commerce. We agree.

We find arbitration pursuant to the FAA is proper because the underlying marina construction transaction falls within the purview of Congress's commerce power. “Generally, any arbitration agreement affecting interstate commerce ... is subject to the FAA.” Landers v. Federal Deposit Ins. Co., 402 S.C. 100, 108, 739 S.E.2d 209, 213 (2013) (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001)). The United States Supreme Court “has previously described the [FAA]'s reach expansively as coinciding with that of the Commerce Clause.” Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (citing Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987)). Thus, in determining whether the FAA applies to a particular arbitration agreement, a court considers whether the contract concerns a transaction involving interstate commerce. Episcopal Housing Corp. v. Fed. Ins. Co., 269 S.C. 631, 637, 239 S.E.2d 647, 650 (1977).

Under the reach of the Commerce Clause, “Congress has authority to regulate (1) ‘the use of the channels of interstate commerce,’ (2) ‘the instrumentalities of interstate commerce, or persons or things in interstate commerce ...’ and (3) ‘those activities having a substantial relation to interstate commerce.’ ” United States v. Gould, 568 F.3d 459, 470 (4th Cir.2009) (quoting United States v. Morrison, 529 U.S. 598, 609, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000)). “Channels of commerce are ‘the interstate transportation routes through which persons and goods move.’ ” United States v. Ballinger, 395 F.3d 1218, 1225 (11th Cir.2005) (quoting Morrison, 529 U.S. at 613 n. 5, 120 S.Ct. 1740) (noting channels of interstate commerce include highways, railroads, navigable waterways, airspace, telecommunications networks and even national securities markets). “Instrumentalities of interstate commerce, by contrast, are the people and things themselves moving in commerce....” Id. at 1226 (identifying automobiles, airplanes, boats, shipments of goods, pagers, telephones and mobile phones as instrumentalities of interstate commerce).

Here, despite noting the following facts, the trial court concluded the parties' transaction did not involve interstate commerce: (1) that certain raw materials used in constructing the marina originated in Ohio; (2) that Cape Romain transported the raw materials on its equipment and barges through the navigable waterways of the Charleston Harbor and up the Wando River to the project site; and (3) that the marina was constructed in navigable waterways under a permit issued by the Army Corps of Engineers. In analyzing the interstate commerce question solely as whether the Contracton its face reflected a “substantial relation to interstate commerce” and in finding the FAA was not triggered, the trial court relied upon Timms v. Greene⁵ and Mathews v. Fluor Corporation.⁶ This was error, for the proper analysis involves consideration of all three broad categories of activity within the purview of Congress's commerce power—use of the channels of interstate commerce; regulation of persons, things or instrumentalities in interstate commerce; and regulation of activities having a substantial relation to interstate commerce. United States v. Lopez, 514 U.S. 549, 558–59, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). While the transaction's effect on interstate commerce was by no means insubstantial, the parties' transaction plainly falls within the purview of Congress's commerce power as it extensively involves both the channels and the instrumentalities of interstate commerce.

We initially observe that the materials used in constructing the dock were instrumentalities of interstate commerce, as they were manufactured or fabricated in Ohio and transported to South Carolina to be used in constructing the marina. In addition, Cape Romain consulted with an out-of-state engineering and survey company in connection with the installation of the dock sections. This Court has previously held that incorporating out-of-state materials and consulting with out-of-state professionals in connection with a construction project are indicators of interstate commerce. See Zabinski, 346 S.C. at 594–95, 553 S.E.2d at 117–18 (utilization of out-of-state materials, contractors and investors implicates interstate commerce); Episcopal Housing, 269 S.C. at 640, 239 S.E.2d 647 S.E.3d at 652 (use of labor, supplies, and materials from out-of-state sources indicates interstate commerce); Blanton v. Stathos, 351 S.C. 534, 540, 570 S.E.2d 565, 568 (Ct.App.2002) (finding consultation with out-of-state technicians is an indicator of interstate commerce).

Regarding channels of interstate commerce, as noted, the construction site is located on the Wando River—i.e., within a channel of interstate commerce—as evidenced by the need for the Army Corps of Engineers to issue a federal permit before construction could begin.⁷ Moreover, in performing its duties under the Contract, Cape Romain used barges to transport materials and equipment through various navigable waterways and as construction platforms adjacent to the marina site. Thus, the location of the construction site, the transportation of out-of-state materials through the channels of interstate commerce, and the use of barges and other instrumentalities of interstate commerce all support application of the FAA in this instance. See United States v. Rands, 389 U.S. 121, 122–23, 88 S.Ct. 265, 19 L.Ed.2d 329 (1967) ( “The power to regulate commerce comprehends the control for that purpose, and to the extent necessary, of all the navigable waters of the United States.”); Ballinger, 395 F.3d at 1226 (noting that shipments of goods and boats themselves are instrumentalities of interstate commerce); United States v. Deaton, 332 F.3d 698, 706 (4th Cir.2003) (“The power over navigable waters is an aspect of the authority to regulate the channels of interstate commerce.”).

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