Davis v. Kb Home of South Carolina Inc.

• Decision Date: 23 August 2011
• Docket Number: No. 4851.,4851.
• Citation: 713 S.E.2d 799,394 S.C. 116
• Court: South Carolina Court of Appeals
• Parties: Lonnie J. DAVIS, Respondent,v.KB HOME OF SOUTH CAROLINA, INC. and Jeff Meyer, Appellants.

394 S.C. 116

713 S.E.2d 799

Lonnie J. DAVIS, Respondent,

v.KB HOME OF SOUTH CAROLINA, INC. and Jeff Meyer, Appellants.

No. 4851.

Court of Appeals of South Carolina.

Heard April 6, 2011.Decided July 13, 2011.Rehearing Denied Aug. 23, 2011.

D. Michael Henthorne and William K. Brumbach, III, both of Columbia and Stephen D. Dellinger, of Charlotte, for Appellants.Allan R. Holmes, Sr., and A. Riley Holmes, Jr., both of Charleston, for Respondent.GEATHERS, J.

In this wrongful termination case, KB Home of South Carolina, Inc. and Jeff Meyer ¹ (collectively Appellants) appeal a circuit court judgment denying their motion to compel arbitration. On appeal, Appellants contend the circuit court erred in: (1) determining the validity of an arbitration clause contained in Lonnie Davis's employment application when that threshold determination was arguably for the arbitrator, (2) finding Appellants waived their right to enforce the arbitration clause by actively participating in litigation for eighteen months before seeking to compel arbitration, and (3) finding the alleged arbitration clause to be an unconscionable and unenforceable contract of adhesion. We affirm.

FACTS/PROCEDURAL HISTORY

Davis applied for employment with KB Home on January 12, 2006. Davis's employment application contained an arbitration clause, stating as follows:

I understand and agree that if employed, I will be required to arbitrate any disputes arising out of or related to my employment with or termination from the Company, including any claims for discrimination, harassment, retaliation and/or wrongful termination. I understand that only an arbitrator, not a judge or a jury, will hear such disputes. I further understand that this term and condition of my employment may not be changed except by written agreement specifically for such purpose entered into between myself and the Company and signed by the President of the division or the Company's Sr. Vice President of Human Resources, and that such term and condition of my employment shall not be affected by any other employment policies or programs, in writing or otherwise, relating to other terms and conditions of my employment and that such policies and programs are subject to change at any time for any reason by the Company at its discretion and that I have no vested rights in any Company policy or program now or hereafter in effect.

(emphasis added). The employment application also stated “I understand that this application remains current for only 30 days.” Davis signed the employment application underneath the following statement: “I certify that I have read, fully understand and accept all of the above terms.”

On March 13, 2006, sixty days later, Davis was offered a position as the Vice President of Finance with KB Home. Davis signed an employment agreement containing a merger clause. The merger clause provided:

Entire Agreement: This letter together with the documents referenced herein contain all of the agreements and understandings regarding your employment and the obligations of KB Home in connection with employment. KB Home has not made, nor are you relying upon any oral or written promises or statements made by KB Home or any agent of KB Home except as expressly set forth herein. This letter supersedes any and all prior agreements and understandings between you and KB Home and alone expresses the agreement of the parties. This letter containing all of the agreements and understandings regarding your employment can only be amended in writing by the Senior Vice President, Human Resources of KB Home.

(emphasis added).

KB Home terminated Davis on July 20, 2007. Davis subsequently brought a lawsuit against Appellants on March 3, 2008, for breach of contract, breach of contract accompanied by a fraudulent act, violation of the South Carolina Payment of Wages Act, wrongful termination/retaliation, and defamation. Davis claimed he was fired for reporting numerous infractions by KB Home employees, including various managers' demeaning and harassing conduct toward female employees as well as numerous fraudulent and unethical financial transactions in violation of the civil and criminal laws of South Carolina.

The parties engaged in discovery, filing multiple sets of interrogatories and requests for production of documents. Both Davis and Appellants produced documents and filed responses to the opposing parties' interrogatories. In addition, Appellants noticed and rescheduled Davis's deposition on five separate occasions. Appellants filed a motion to dismiss, which the circuit court heard and denied on January 9, 2009. A scheduling order was signed by the circuit court on April 30, 2009.

Davis filed a motion to compel discovery on July 13, 2009. Specifically, Davis suggested Appellants' responses to Davis's first set of interrogatories and requests for production were inadequate. On July 28, 2009, Appellants filed a motion for entry of a confidentiality order with respect to Davis's discovery requests. On August 5, 2009, Appellants filed a memorandum in response to Davis's motion to compel discovery. The parties consented to an amended scheduling order, which was signed on August 7, 2009.

In September of 2009, eighteen months after Davis filed his complaint, Appellants filed a motion to compel arbitration and to stay the proceedings. Davis filed a response to the motion to compel arbitration. Davis argued the merger clause in his subsequent employment agreement superseded the prior employment application containing an arbitration clause. Davis further argued Appellants waived their right to seek arbitration by waiting eighteen months to file a motion to compel arbitration. Davis suggested the parties had engaged in extensive discovery, thereby giving Appellants an unfair advantage should the case go to arbitration. Finally, Davis argued the arbitration clause was an unconscionable contract of adhesion, and therefore unenforceable by an arbitrator.

The circuit court held a hearing on the motion to compel and denied the motion. The circuit court noted “[t]he reason for the denial is as set forth in [Davis's] memorandum, all of the reasons stated.” ² The circuit court issued a Form 4 judgment denying Appellants' motion to compel arbitration on October 30, 2009. Appellants did not file a motion to alter or amend pursuant to Rule 59(e), SCRCP. This appeal followed.

ISSUES ON APPEAL

1. Is it for a court or an arbitrator to determine the threshold validity of an arbitration

clause contained in Davis's employment application when a merger clause in the resulting employment agreement arguably superseded the application thereby rendering the arbitration clause invalid, and when the employment application stated it would expire after 30 days?

2. Did KB Home and Meyer waive their right to enforce the arbitration clause in Davis's employment application by actively participating in litigation for eighteen months before seeking to compel arbitration?

3. Is the arbitration clause an unconscionable and unenforceable contract of adhesion?

STANDARD OF REVIEW

“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) (emphasis added). “Nevertheless, a circuit court's factual findings will not be reversed on appeal if any evidence reasonably supports the findings.” Id. “The denial of a motion to compel arbitration, based on a finding of waiver, is reviewed on appeal de novo.” Rich v. Walsh, 357 S.C. 64, 68, 590 S.E.2d 506, 508 (Ct.App.2003).

LAW/ANALYSIS

I. Court versus Arbitrator

We first address the issue of whether it was proper for the circuit court, as opposed to an arbitrator, to address the threshold validity of the arbitration clause contained in Davis's employment application.

“Unless the parties have contracted to the contrary, the FAA [Federal Arbitration Act] applies in federal or state court to any arbitration agreement regarding a transaction that in fact involves interstate commerce, regardless of whether or not the parties contemplated an interstate transaction.” Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 538, 542 S.E.2d 360, 363 (2001). Neither party challenges the circuit court's application of the FAA to the employment agreement in the instant case. Therefore, this court need not address whether this contract qualifies as a transaction involving interstate commerce. See ML–Lee Acquisition Fund, L.P. v. Deloitte & Touche, 327 S.C. 238, 241, 489 S.E.2d 470, 472 (1997) (stating that an unchallenged ruling, right or wrong, is the law of the case).

“[E]ven in cases where the FAA otherwise applies, general contract principles of state law apply in a court's evaluation of the enforceability of an arbitration clause.” Simpson, 373 S.C. at 22 n. 1, 644 S.E.2d at 667 n. 1; see also Munoz, 343 S.C. at 539, 542 S.E.2d at 364 (“General contract principles of state law apply to arbitration clauses governed by the FAA.”). Therefore, our analysis under South Carolina law is “ultimately the same” as the analysis under federal law. Simpson, 373 S.C. at 22 n. 1, 644 S.E.2d at 667 n. 1. Appellants contend Simpson is inapplicable to the present matter because it was governed by the South Carolina Uniform Arbitration Act (UAA), whereas the instant case is governed by the FAA. We disagree.

As the supreme court noted in Simpson, this distinction is insignificant as the UAA and FAA provisions at issue are nearly identical. Compare 9 U.S.C.A. §§ 2, 4 (West 2009), with S.C.Code Ann. §§ 15–48–10(a), –20(a) (2005). The FAA provides: “The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C.A. § 4 (West 2009) (emphasis added); accord S.C.Code Ann. § 15–48–20(a) (2005) (noting “ if the...