Toler's Cove Homeowners v. Trident Const.

• Citation: 586 S.E.2d 581,355 S.C. 605
• Decision Date: 08 September 2003
• Docket Number: No. 25713.,25713.
• Court: United States State Supreme Court of South Carolina
• Parties: TOLER'S COVE HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. TRIDENT CONSTRUCTION COMPANY, INC., Defendant. and Trident Construction Company, Inc., Respondent, v. Ball Corporation, Proper Seal, Inc., L.A. Metz, Inc., and Tynes Associates, Inc., Third Party Defendants, of whom Ball Corporation, is Appellant.

355 S.C. 605

586 S.E.2d 581

TOLER'S COVE HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. TRIDENT CONSTRUCTION COMPANY, INC., Defendant. and Trident Construction Company, Inc., Respondent, v. Ball Corporation, Proper Seal, Inc., L.A. Metz, Inc., and Tynes Associates, Inc., Third Party Defendants, of whom Ball Corporation, is Appellant.

No. 25713.

Supreme Court of South Carolina.

Heard May 28, 2003.

Decided September 8, 2003.

Morgan S. Templeton, of Elmore & Wall, P.A., of Charleston, for appellant.

Perrin Q. Dargan, III, and Paul E. Sperry, of Robertson & Hollingworth, of Charleston, for respondents.

Justice MOORE:

We certified this appeal from the Court of Appeals pursuant to Rule 204(b), SCACR. Ball Corporation (appellant) appeals the lower court's order granting Trident Construction Company, Inc.'s (respondent's) motion to compel arbitration. We affirm.

FACTS

On January 30, 2001, Toler's Cove Homeowners Association (Toler's Cove) filed a complaint against respondent alleging construction defects resulting from work performed to a condominium complex in Mount Pleasant, South Carolina. Respondent filed an answer asserting its right to compel arbitration. Following two inspections of the building to determine the precise nature of Toler's Cove's complaints and to identify the subcontractors responsible for the work, respondent learned Toler's Cove's allegations focused in part on work performed by appellant¹ pursuant to its subcontract with respondent to perform stucco repair and installation at the project.

Appellant's subcontract with respondent states on the first page: THIS AGREEMENT SUBJECT To ARBITRATION UNDER 15-48-10 S.C. CODE OF LAWS. The subcontract also contains the following arbitration provision:

SECTION 19. All claims, disputes and other matters in question between the Contractor and Subcontractor arising out of or relating to the Contract Documents or the breach thereof; shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.

On October 21, 2001, respondent submitted to the court a consent order to file a third-party complaint. On January 3, 2002, respondent filed the third-party complaint against appellant once learning the order had been filed. Respondent's third-party complaint stated: "[Appellant's] contract contains an arbitration provision that is enforceable under South Carolina law." On February 11, 2002, appellant filed its answer to the complaint. After procuring all other parties' consents to arbitration except appellant's, respondent moved to compel arbitration on February 21, 2002. Appellant responded to respondent's written discovery requests that were served four days after that motion. The lower court subsequently granted respondent's motion to compel arbitration.

ISSUES

I. Whether the court's order compelling arbitration is immediately appealable?

II. Did the court err by granting the motion to compel arbitration?

III. Whether the arbitration clause is unconscionable?

I

DISCUSSION

The parties' agreement, on its face, does not resolve the issue of whether the Federal Arbitration Act (FAA) or the South Carolina Uniform Arbitration Act applies to the arbitration agreement because it does not include a choice of law provision. The lower court, however, took judicial notice of the fact the agreement involves interstate commerce. This finding is the law of the case because neither party has taken issue with that finding. See ML-Lee Acquisition Fund, L.P. v. Deloitte & Touche, 327 S.C. 238, 489 S.E.2d 470 (1997)

(unappealed ruling is law of the case). Therefore, the substantive law of the FAA applies to the parties' arbitration agreement. See Osteen v. T.E. Cuttino Constr. Co., 315 S.C. 422, 434 S.E.2d 281 (1993) (where contract involves interstate commerce, state law regarding arbitration is supplanted by federal substantive law). However, we must still determine whether the FAA preempts our state procedural rule that an order compelling arbitration is not immediately appealable under Heffner v. Destiny, Inc., 321 S.C. 536, 471 S.E.2d 135 (1995).

The court's order compelling arbitration is not immediately appealable under South Carolina law because Heffner held all orders relating to arbitration not mentioned in S.C.Code Ann. § 15-48-200(a) (Supp.2002)² are not immediately appealable.³ The federal policy favoring arbitration, as expressed in the FAA, is binding in state courts and supersedes inconsistent state law and statutes that invalidate arbitration agreements. Zabinski v. Bright Acres Assocs., 346 S.C. 580, 590, 553 S.E.2d 110, 115; Munoz v. Green Tree Financial Corp., 343 S.C. 531, 539, 542 S.E.2d 360, 363, n. 2. However, the FAA contains no express preemptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 477, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989). The question is whether the state law would undermine the goals and policies of the FAA. Id. at 477-478, 109 S.Ct. at 1255. There is no federal policy favoring arbitration under a certain set of procedural rules and the federal policy is simply to ensure the enforceability of private agreements to arbitrate. Id. See also Zabinski, supra

(state procedural rules that do not undermine enforceability of otherwise valid contract to arbitrate may be deemed to have been incorporated into contract through choice of law provisions); Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 768 A.2d 620 (2001) (finding general state appeals statute that recognizes order compelling arbitration to be appealable not preempted by § 16(b)(2) of the FAA).

While the FAA will preempt any state law that completely invalidates the parties' agreement to arbitrate, see Zabinski, supra,

in the instant case South Carolina law is not invalidating the arbitration agreement or undermining the goals and policies of the FAA. Instead, the arbitration agreement is being enforced by the court's order compelling arbitration which coincides with the FAA's policy in favor of arbitration of disputes. See Zabinski, supra; Heffner, supra.

Accordingly, because South Carolina's procedural rule on appealability of arbitration orders, rather than the FAA rule, is applicable, the court's order compelling arbitration is not immediately appealable. Regardless, because appellant's issues are capable of repetition and need to be addressed we proceed to a review of those issues.

II DISCUSSION

Appellant argues respondent waived its right to arbitrate by engaging in the litigation process.

It is generally held that the right to enforce an arbitration clause may be waived. General Equip. & Supply Co., Inc. v. Keller Rigging & Constr., SC, Inc., 344 S.C. 553, 544 S.E.2d 643 (Ct.App.2001). See also Evans v. Accent Manufactured Homes, Inc., 352 S.C. 544, 575 S.E.2d 74 (Ct.App.2003)

. In order to establish waiver, a party must show prejudice through an undue burden caused by delay in demanding arbitration. General Equip., supra. Mere inconvenience to an opposing party is not sufficient to establish prejudice. Id. There is no set rule as to what constitutes a waiver of the right to arbitrate; the question depends on the facts of each case. Id. Furthermore, it is the policy of this state to favor arbitration of disputes. Id.

In this case, the litigation process had lasted approximately thirteen months between the time the initial complaint was filed by Toler's Cove and the time respondent moved to compel arbitration. As between respondent and appellant, a third-party-defendant, the litigation process had lasted only approximately six weeks between the time respondent filed a complaint against appellant and the time respondent filed a motion to compel arbitration. This fact alone does not prejudice appellant due to a delay in demanding arbitration. See General Equip., supra (no waiver where party seeking arbitration had been involved in litigation for less than eight months). Cf. Liberty Builders, Inc. v. Horton, 336 S.C. 658, 521 S.E.2d 749 (Ct.App.1999)

(waiver occurred where party seeking arbitration had been involved in litigation for two and one-half years).

Further, as in General Equip., the discovery that occurred was very limited in nature and the parties had not availed themselves of the court's assistance other than respondent's request to file a third-party complaint. Respondent had not held any depositions or engaged in extensive discovery requests. Accordingly, respondent did not waive its right to enforce the arbitration clause.

III DISCUSSION

Appellant argues the arbitration clause in the subcontract should be invalidated because the arbitration costs are unconscionable given appellant is a defunct corporation. Appellant asserts the arbitration filing fee of $8,500 and the case service fee of $2,500 are unconscionable. Appellant also believes the requirement under American Arbitration Association rules that a deposit be made in advance of arbitration to cover the arbitration expenses is...