Harris v. Bennett
| Decision Date | 29 June 1998 |
| Docket Number | No. 2861.,2861. |
| Citation | 332 S.C. 238,503 S.E.2d 782 |
| Parties | John B. HARRIS, III; Marian L. Harris; Pinecrest III, Limited, Inc., a Corporation; Pinecrest IV, Limited, Inc., a Corporation; Pinecrest V, Limited, Inc., a Corporation; Pinecrest VI, Limited, Inc., a Corporation; and The Pinecrest Group, Inc., Respondents, v. Michael R. BENNETT; John H. Hofford; SouthCoast One, a Corporation; SouthCoast Two, a Corporation; SouthCoast Three, a Corporation; and SouthCoast Four, a Corporation, Appellants. |
| Court | South Carolina Court of Appeals |
Claron A. Robertson, III and R. Patrick Flynn, both of Robertson & Associates, Charleston, for Appellants.
Richard S. Rosen and Donald B. Clark, both of Rosen, Rosen & Hagood, Charleston, for Respondents.
This is an appeal of a circuit court's order confirming an award by an arbitration panel. Appellants Michael R. Bennett and John H. Hofford argue the arbitration panel exceeded its power and demonstrated a manifest disregard of the law in reaching its decision. We affirm.1
Bennett and Hofford are principals in the Bennett-Hofford Company, Inc., an organization based in Charleston, South Carolina which specializes in commercial real estate development, including new construction, restoration, and renovation projects. John B. Harris, III is president of The Pinecrest Group, Inc., a firm based in Washington, D.C. which engages in financing for large commercial real estate developments.
The underlying action involved four separate development projects: (1) Ocean Park, in Georgetown; (2) Driftwood Beach Cottages at Melrose, on Daufuskie Island; (3) The Village at Turtle Beach, on Kiawah Island; and (4) The Ocean Green Golf Cottages, on Kiawah Island. Bennett and Hofford formed four separate corporations, SouthCoast One through Four, and Harris formed four separate corporations, Pinecrest III through VI. For each project, the parties formed partnerships consisting of one SouthCoast corporation and one Pinecrest corporation.
The project at issue in this appeal is known as "The Ocean Green Golf Cottages" on Kiawah Island. The partnership agreement for Ocean Green Associates (OGA) was executed on February 2, 1990 by general partners Pinecrest VI, Ltd. (45%) and SouthCoast Four Corporation (45%), and limited partner George Taylor (10%). Taylor is not a party to the underlying action.
Bennett, Hofford, and Harris negotiated with Citizens Saving Bank to borrow $2.5 million as an acquisition and development loan for the OGA project. Harris, Bennett, Hofford, and Taylor each signed a personal Guaranty Agreement to secure the loan. As part of the security for the loan, the lender required a $500,000 letter of credit, which was provided by Harris. The letter of credit was to be called in the event of default on the loan.
Section 6.2(a)(i) of the OGA Limited Partnership Agreement provides in pertinent part as follows:
All the Partners shall commit their credit to obtain the Acquisition and Development Loan (to satisfy and replace the Initial Loan) as well as any other loans obtained by the Partnership as deemed necessary or advisable by the General Partners subject to the limitations contained in ARTCLE IX and further subject to the condition that the Limited Partner's personal liability with respect to any such Partnership Loan(s) shall be limited to his Profit-Sharing Percentage. To that end, the Class A General Partner [Pinecrest VI] hereby agrees to arrange and establish an irrevocable letter of credit in an amount necessary to obtain such A & D Loan up to thirty-nine percent (39%) of the A & D Loan. (The Partnership shall pay the Class A Partner all reasonable costs incurred by it to obtain such letter of credit.)
(Emphasis added.)
The OGA partnership obtained the acquisition and development loan in July of 1990, and Harris, Bennett, Hofford, and Taylor each signed as personal guarantors on the loan. Harris supplied the letter of credit for $500,000. Bennett and Hofford were not obligated under the letter of credit. The OGA partnership defaulted on the loan, and the bank called the letter of credit in 1992 and applied Harris's $500,000 to partially satisfy the partnership debt.
At arbitration, Harris asserted he was entitled to contribution for his payment on the letter of credit from Bennett and Hofford as individuals. The arbitration panel agreed, stating:
John Harris also claims $307,957 against Messrs. Hofford and Bennett in connection with the Ocean Green guarantee. The Arbitrators deny Respondents' claims that the corporate veils of the SouthCoast entities should be pierced, but nonetheless find on other grounds as follows. The Arbitrators find that John B. Harris is entitled to contribution from his co-guarantors, Michael R. Bennett and John H. Hofford, and award John B. Harris $153,978 payable each by Michael R. Bennett and John H. Hofford.
The circuit court confirmed the award of the arbitration panel. Bennett and Hofford appeal.
ISSUE
Did the circuit court err in confirming the award because the arbitration panel allegedly exceeded its powers and demonstrated a manifest disregard of the law?
Review of arbitration awards is limited and the decision of an arbitration panel will be vacated only under certain grounds as provided by statute or upon the non-statutory ground of "manifest disregard of the law."
Arbitration is a favored method of settling disputes in South Carolina. When a dispute is submitted to arbitration, the arbitrators determine questions of both law and fact. Generally, an arbitration award is conclusive and courts will refuse to review the merits of an award. An award will only be vacated under narrow, limited circumstances.
Pittman Mortgage Co. v. Edwards, 327 S.C. 72, 75-76, 488 S.E.2d 335, 337 (1997) (citations omitted).
In section 15-48-130, the South Carolina legislature has set forth a number of instances in which the court shall vacate an arbitration award, including when "[t]he arbitrators exceeded their powers." S.C.Code Ann. § 15-48-130(a)(3) (Supp.1997). Our Supreme Court has clearly stated that arbitrators exceed their powers only if the issue resolved by them is not within the scope of the agreement to arbitrate. If an issue is within the scope of the arbitration agreement, the court need not review the merits of the decision. Factual and legal errors by arbitrators do not constitute an abuse of their powers under section 15-48-130(a)(3):
Pittman Mortgage Co., 327 S.C. at 76-77, 488 S.E.2d at 338 (citations omitted).
In addition to the statutory grounds for vacating the award, an award may be vacated where there has been a "manifest disregard or perverse misconstruction of the law." Batten v. Howell, 300 S.C. 545, 549, 389 S.E.2d 170, 172 (Ct.App.1990). Our Supreme Court has stated this non-statutory ground requires something more than a mere error in construing or applying the law:
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