Doe v. TCSC, LLC

• Decision Date: 01 July 2020
• Docket Number: Appellate Case No. 2017-001216,Opinion No. 5733
• Citation: 430 S.C. 602,846 S.E.2d 874
• Parties: Jane DOE, an adult woman over the age of 18, Respondent, v. TCSC, LLC, d/b/a Hendrick Toyota of North Charleston, Appellant.
• Court: South Carolina Court of Appeals

430 S.C. 602

846 S.E.2d 874

Jane DOE, an adult woman over the age of 18, Respondent,

v.TCSC, LLC, d/b/a Hendrick Toyota of North Charleston, Appellant.

Appellate Case No. 2017-001216

Opinion No. 5733

Court of Appeals of South Carolina.

Heard November 13, 2019

Filed July 1, 2020

Edward D. Buckley, Jr., Stephen Lynwood Brown, Russell Grainger Hines, and Nicholas James Rivera, all of Young Clement Rivers, of Charleston, for Appellant.

Mark A. Mason and Anthony Edward Forsberg, both of The Mason Law Firm, PA, of Mount Pleasant, for Respondent.

HILL, J.:

When Jane Doe bought a new car in 2011 from Appellant TCSC, LLC, d/b/a Hendrick Toyota of North Charleston (Dealer), like most every consumer she signed a sheaf of documents to close the sale. One of these documents was a one page Arbitration Agreement. Four and one-half years later, Doe returned to the dealership to have the car serviced. She also spoke with a salesman about trading in her 2011 car for a new one. Despite the salesman's persistent pitches, Doe decided to buy elsewhere. The rebuffed salesman, for reasons known only to him, sought revenge by posting an ad posing as Doe on a sexually explicit website, together with Doe's contact information. Minutes later, Doe began receiving strange telephone calls and text messages, some of which were sexually suggestive. An investigation linked the harassment to the ad the salesman had placed. Doe brought this lawsuit against Dealer, alleging an array of torts based on respondeat superior.

Dealer moved to compel arbitration of Doe's claims, based on the Agreement, specifically the following sentence:

Any claim or dispute, whether in contract, tort, statute, or otherwise (including the interpretation and scope of this Arbitration Agreement, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors, or assigns, which arises out of or relates to your credit application, purchase, lease, or condition of this vehicle, your purchase, lease agreement, or financing contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign your purchase, lease agreement, or financing contract) shall at your or our election, be resolved by neutral, binding arbitration and not by a court action.

The circuit court denied the motion, finding the Agreement unconscionable. Dealer appealed. The question now before us is whether the parties intended for the court or an arbitrator to decide the threshold issue of whether the Agreement is valid and enforceable. Based on the parties' intent and the mandate of the Federal Arbitration Act (FAA) requiring courts to honor parties' valid contractual choices, we conclude the issue is for the court. We further affirm the trial court's finding of unconscionability, but on different grounds and only as to a portion of the Agreement. We sever that portion, and hold the issue of whether Doe's dispute is covered by the revised Agreement is for an arbitrator, as the parties clearly and unmistakably delegated the issue of the interpretation and scope of the Agreement to an arbitrator.

I.

A. The FAA

Due to the strong South Carolina and federal policy favoring arbitration, arbitration agreements are presumed valid. See Cape Romain Contractors, Inc. v. Wando E., LLC , 405 S.C. 115, 125, 747 S.E.2d 461, 466 (2013). We review circuit court determinations of arbitrability de novo , but will not reverse a circuit court's factual findings reasonably supported by the evidence. Parsons v. John Wieland Homes & Neighborhoods of the Carolinas, Inc. , 418 S.C. 1, 6, 791 S.E.2d 128, 130 (2016). The parties agree the contract is governed by the FAA, the relevant portion of which states:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... 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. § 2 (2018).

Because an arbitration provision is often one of many provisions in a contract covering many other aspects of the transaction, the first task of a court is to separate the arbitration provision from the rest of the contract. This may seem odd, but it is the law, known as the Prima Paint doctrine. See Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (arbitrator rather than court must decide claim that underlying contract in which arbitration provision was contained was fraudulently induced; but if fraudulent inducement claim went to the arbitration provision specifically, claim would be for court because such a claim goes to the "making" of the arbitration agreement and § 4 requires the court to "order arbitration to proceed once it is satisfied that ‘the making of the agreement for arbitration ... is not in issue’ "). Here, though, the arbitration provision is the entire contract, so we cut to the next question: whether the contract constitutes a valid agreement to arbitrate. Because the FAA does not require parties to arbitrate when they have not agreed to do so, the inquiry at this stage is twofold: whether a valid agreement exists and who the parties have deemed should make the validity determination.

The FAA presumes parties intend that the court, rather than an arbitrator, will decide "gateway" issues related to arbitration, including whether the arbitration agreement is valid and enforceable and whether it covers the parties' dispute. See First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The parties may, of course, delegate these gateway issues to an arbitrator as long as there is "clear and unmistakable" evidence of such delegation. Id. at 944–45, 115 S.Ct. 1920 ; Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 530, 202 L.Ed.2d 480 (2019) ; AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). If such a delegation occurred, the court still retains the right and duty to determine whether the delegation is valid and enforceable as long as the party resisting arbitration has made a direct and discrete challenge to the validity and enforceability of the delegation clause specifically, rather than the arbitration agreement as a whole. See Rent-A-Center, West, Inc. v. Jackson , 561 U.S. 63, 68, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010).

According to Dealer, the parties clearly and unmistakably agreed to delegate the issue of the validity and enforceability of the arbitration provision to the arbitrator. Therefore, Dealer asserts, the court has no right to rule upon this gateway issue. We disagree. In the delegation clause here, the parties empowered the arbitrator to resolve only the limited gateway issues of "the interpretation and scope of this Arbitration Agreement, and the arbitrability of the claim or dispute." The parties did not delegate the decision of whether the Agreement was valid and enforceable. After all, one cannot "interpret" an invalid contract. This omission removes the Agreement from the reach of Rent-A-Center , which addressed a delegation clause giving the arbitrator the exclusive authority to resolve any dispute relating to the "enforceability" of the agreement "including ... any claim that all or any part of this [a]greement is void or voidable." The Court held that unless a party focused its unconscionability challenge on the delegation clause itself (rather than the arbitration agreement generally), a court must treat the delegation clause "as valid under § 2, and must enforce it under §§ 3 and 4, leaving any challenge to the validity of the Agreement as a whole for the arbitrator." Id. at 72, 130 S.Ct. 2772.

Consistent with Rent-A-Center , because it is clear and unmistakable the delegation clause committed disputes over the "interpretation and scope" of the Arbitration Agreement and issues of "arbitrability of the claim or dispute" to the arbitrator, the FAA requires us to honor that agreement and leave resolution of these discrete gateway issues to the arbitrator. But because the parties' delegation clause did not mention who decides the gateway validity and enforceability issues, we must honor the parties' choice to leave these to the court. Without an express delegation of these issues to the arbitrator, there is no delegation of them that § 2 requires the court to carry out. Instead, it remains for the court to decide whether the Agreement is valid. See Schein , 139 S. Ct. at 530 ("To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists."); Davis v. KB Home of S.C., Inc. , 394 S.C. 116, 126, 713 S.E.2d 799, 804 (Ct. App. 2011) (where arbitration clause did not expressly submit issues relating to validity, existence, and scope of arbitration agreement to arbitrator, FAA reserved such gateway issues to court), aff'd in part, vacated in part on other grounds , Op. No. 27386 (S.C. Sup. Ct. filed Jan. 29, 2014) (Shearouse Adv. Sh. No. 19 at 18). This is consistent with § 4 of the FAA that a court may only order arbitration to proceed if it is satisfied the "making" of the arbitration agreement is not "in issue."

Arbitration "is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration." First Options , 514 U.S. at 943, 115 S.Ct. 1920. Rent-A-Center classified delegation clauses as simply miniature arbitration agreements, "and the FAA operates on this additional arbitration agreement just as it does on any other." 561 U.S. at 70, 130 S.Ct. 2772 ; see also Volt Info. Scis., Inc. v. Bd. of Tr. of Leland Stanford Junior Univ. , 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ("[T]he FAA does not require parties to arbitrate when they have not agreed to...