Palmetto Homes, Inc. v. Bradley

• Decision Date: 23 December 2003
• Docket Number: No. 3717.,3717.
• Citation: 357 S.C. 485,593 S.E.2d 480
• Court: South Carolina Court of Appeals
• Parties: PALMETTO HOMES, INC., Appellant, v. Philip BRADLEY, Chad Summerall, B & S masonry, Inc., Bradley and Summerall Masonry, Inc., Respondents.

357 S.C. 485

593 S.E.2d 480

PALMETTO HOMES, INC., Appellant, v. Philip BRADLEY, Chad Summerall, B & S masonry, Inc., Bradley and Summerall Masonry, Inc., Respondents.

No. 3717.

Court of Appeals of South Carolina.

Submitted September 8, 2003.

Decided December 23, 2003.

Withdrawn, Substituted and Re-Filed February 19, 2004.

Rehearing Denied February 29, 2004.

H.W. Pat Paschal, Jr., of Greenville, for Appellant.

John R. Devlin, Jr., Christopher R. Antley, both of Greenville, for Respondents.

HOWARD, J.:

Palmetto Homes, Inc. ("Contractor") sued Philip Bradley, Chad Summerall, B & S Masonry, Inc., Bradley and Summerall Masonry, Inc. (collectively "Subcontractor"), asserting causes of action for breach of contract, breach of contract accompanied by a fraudulent act, breach of warranty, and negligence. In response, Subcontractor pled a previously obtained arbitration award as a bar to Contractor's causes of action, simultaneously moving to confirm the arbitration award. The circuit court confirmed the arbitration award and entered judgment in favor of Subcontractor. Contractor moved to vacate the award and compel another arbitration, arguing it had not been provided notice of the arbitration proceeding and thus had not appeared to defend it. The circuit court denied the motion to vacate the arbitration award, ruling Contractor had been provided notice. Additionally, the court granted Subcontractor's motion to dismiss Contractor's claims, ruling they were barred by res judicata. Contractor appeals. We affirm as modified.

FACTUAL/PROCEDURAL BACKGROUND

Contractor is a residential homebuilder. Contractor entered into a contract with Subcontractor, whereby Subcontractor agreed to provide the masonry work on a residential homebuilding project. The contract between the parties provided for the arbitration of disputes with the American Arbitration Association ("AAA"). Specifically it read:

ARBITRATION: SHOULD A DISPUTE ARISE BETWEEN THE CONTRACTOR AND SUB-CONTRACTOR AS TO ANY MATTER CONCERNING THE WITHIN SUB-CONTRACTOR AGREEMENT AND OR ANY WORK PERFORMED, MATERIALS FURNISHED ON PAYMENT MADE OR REQUESTED FOR SAME, SAID DISPUTE SHALL BE RESOLVED IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE AMERICAN ARBITRATION ASSOCIATION.

(emphasis as in original).

Following Subcontractor's completion of the masonry work, Contractor asserted there were defects in the masonry work and refused to pay Subcontractor. Subcontractor then filed a demand for arbitration with the AAA, asserting a claim for a mechanic's lien. Contractor never responded to the demand for arbitration.

After numerous notices were mailed and faxed to Contractor by the AAA, the arbitration took place without the participation of Contractor, and the arbitrator issued an award in favor of Subcontractor.

Following the arbitration award, Contractor brought this action asserting causes of action for breach of contract, breach of contract accompanied by a fraudulent act, breach of warranty, and negligence.

Subcontractor filed a Petition to Confirm Arbitration Award, and the circuit court issued an order confirming the arbitration award and entering judgment. Contractor then filed and served a motion to vacate the arbitration award and compel another arbitration of the dispute, arguing Rule 4, South Carolina Rules of Civil Procedure, applied, and Contractor never received proper notice of the arbitration proceedings. Subcontractor then filed and served its motion to dismiss Contractor's action on the grounds that res judicata barred the suit.

The circuit court denied Contractor's motion to vacate, ruling numerous attempts were made to serve and provide notice of the arbitration proceedings, but Contractor intentionally avoided service. Additionally, the circuit court granted Subcontractor's motion to dismiss Contractor's causes of action on the grounds of res judicata.

LAW/ANALYSIS

I. Contractor's Motion to Vacate the Arbitration Award

Contractor argues the circuit court erred by finding Contractor received service of process because the service did not comply with Rule 4, South Carolina Rules of Civil Procedure.¹ We hold Palmetto received sufficient service of process and affirm as modified. An appellate court may affirm the circuit court's ruling using any sustaining grounds that are both raised by the respondent's brief and found within the record. See I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 420, 526 S.E.2d 716, 723 (2000)

.

In the present case, the contract signed by the parties specifically stated the rules and regulations of the AAA apply to the arbitration. Thus, we analyze whether service of process was effected pursuant to the AAA rules. See Dowling v. Home Buyers Warranty Corp. II, 311 S.C. 233, 236, 428 S.E.2d 709, 710 (1993)

(holding an agreement to arbitrate is a contract, and the parties are free to determine its terms); see also Simmons v. Lucas & Stubbs Assocs., Ltd., 283 S.C. 326, 332-33, 322 S.E.2d 467, 470 (Ct.App.1984) (holding arbitration is a matter of contract, and the range of issues that can be arbitrated is restricted by the terms of the agreement); Marolf Const. Inc. v. Allen's Paving Co., 154 N.C.App. 723, 572 S.E.2d 861, 863 (2002) (holding parties may alter statutory service of process rules through valid arbitration agreements).

The AAA publication of the Construction Industry Dispute Resolution Procedures (1999) contains Rule R-40, which states:

Each party shall be deemed to have consented that any papers, notices, or process necessary or proper for the initiation or continuation of an arbitration under these rules; for any court action in connection therewith; or for the entry of judgment on any award made under these rules, may be served on a party by mail addressed to the party or its representative at the last known address or by personal service.

Additionally, the rule provides for the following methods of service: "The AAA, the parties, and the arbitrator may also use overnight delivery, electronic facsimile (fax), telex, and telegram." Rule R-40.

The record indicates Subcontractor utilized regular mail as provided by the AAA rules for the service of the demand for arbitration. Subsequent notices sent by the AAA were sent by certified mail, regular mail, and facsimile. Sometimes the same notice was sent by more than one method.

The record also indicates the facsimiles were transmitted properly. Additionally, there is no evidence the regular mail was returned as undeliverable or for any other reason. The certified mail was returned. However, it was returned because its acceptance was refused or it went unclaimed.²

Given the facts of this case, we hold service of process was effected pursuant to the AAA rules.³ Thus, Contractor received proper service of process.⁴

II. Subcontractor's Motion to Dismiss

Contractor argues the circuit court erred by granting Subcontractor's motion to dismiss, ruling Contractor's causes of action for breach of contract accompanied by a fraudulent act and negligence were barred by principles of res judicata. We disagree.

A. Scope of the Arbitration Agreement

As a threshold matter, Contractor contends its causes of action for breach of contract accompanied by a fraudulent act and negligence are not within the scope of the arbitration agreement, and thus, the arbitration award cannot bar the claims.⁵

South Carolina law favors arbitration of disputes. Tritech Elec., Inc. v. Frank M. Hall & Co., 343 S.C. 396, 399, 540 S.E.2d 864, 865 (Ct.App.2000). Arbitration is a matter of contract, and the range of issues that can be arbitrated is restricted by the terms of the agreement. Simmons, 283 S.C. at 332-33, 322 S.E.2d at 470.

"To decide whether an arbitration agreement encompasses a dispute, a court must determine whether the factual allegations underlying the claim are within the scope of the broad arbitration clause.... [U]nless the court can say with positive assurance the arbitration clause ... [does] not cover[] the dispute, arbitration should be ordered." South Carolina Pub. Serv. Auth. v. Great W. Coal (Kentucky), Inc., 312 S.C. 559, 563, 437 S.E.2d 22, 25 (1993).

The arbitration agreement states, "ANY MATTER CONCERNING THE WITHIN SUB-CONTRACTOR AGREEMENT AND OR ANY WORK PERFORMED" will be subject to arbitration. (emphasis as in original).

The parties' agreement provided Subcontractor would perform masonry work for Contractor's homebuilding project. Contractor's causes of action for breach of contract accompanied by a fraudulent act and negligence essentially allege Subcontractor defectively installed the masonry work on a residential homebuilding project.⁶ These claims are matters concerning the agreement or the work performed. Therefore, the claims are within the scope of the arbitration agreement. See Zabinski v. Bright Acres Assocs., 346 S.C. 580, 597-98, 553 S.E.2d 110, 119 (2001)

(holding where the partnership agreement provided all claims arising from the partnership agreement were to be arbitrated, any torts related to the partnership agreement were also matters for arbitration); Long v. Silver, 248 F.3d 309, 316 (4th Cir.2001) (holding claims are within the scope of the arbitration clause if a "significant relationship" exists between the asserted claims and the contract in which the arbitration clause is contained).

B. The Doctrine of Res Judiciata

Contractor next argues the circuit court erred by ruling res judicata bars his claims for breach of contract accompanied by a fraudulent act and negligence. We disagree.

"Under the doctrine of res judicata, `[a] litigant is barred from raising any issues which were adjudicated in the former suit and any issues which might have been raised in the former suit.'" Plum Creek Dev. Co., Inc. v. City of Conway, 334 S.C. 30, 34, 512 S.E.2d 106, 109 (1999) (quoting Hilton Head Ctr. of South Carolina, Inc. v. Pub. Serv. Comm'n of South Carolina, 294 S.C. 9, 11, 362 S.E.2d 176, 177 (1987)). "The doctrine requires...