Zabinski v. Bright Acres Associates

• Decision Date: 04 September 2001
• Docket Number: No. 25358.,25358.
• Citation: 553 S.E.2d 110,346 S.C. 580
• Court: South Carolina Supreme Court
• Parties: Leo ZABINSKI and John Brainard, Appellants, v. BRIGHT ACRES ASSOCIATES, a South Carolina General Partnership, Henry Massey, and the Estate of John Leutwiler, deceased, individually, and as General Partners. and Estate of John Leutwiler, Respondents, Third-Party Plaintiff, v. John Martin Brainard, Michael Forsyth Brainard, Joanne Foye Brainard, Melanie Brainard, David McLeod Brainard, Allison Christie Brainard, LOM Development, LLC, Wachovia Mortgage Co., HRM, Inc., and Edward Bullard, Third-Party Defendants. and Bright Acres Associates, a South Carolina Partnership Fourth-Party Plaintiff, v. J. Ray Westmoreland, Fourth-Party Defendant.

346 S.C. 580

553 S.E.2d 110

Leo ZABINSKI and John Brainard, Appellants, v. BRIGHT ACRES ASSOCIATES, a South Carolina General Partnership, Henry Massey, and the Estate of John Leutwiler, deceased, individually, and as General Partners. and Estate of John Leutwiler, Respondents, Third-Party Plaintiff, v. John Martin Brainard, Michael Forsyth Brainard, Joanne Foye Brainard, Melanie Brainard, David McLeod Brainard, Allison Christie Brainard, LOM Development, LLC, Wachovia Mortgage Co., HRM, Inc., and Edward Bullard, Third-Party Defendants. and Bright Acres Associates, a South Carolina Partnership Fourth-Party Plaintiff, v. J. Ray Westmoreland, Fourth-Party Defendant.

No. 25358.

Supreme Court of South Carolina.

Heard June 19, 2001.

Decided September 4, 2001.

Rehearing Denied October 10, 2001.

A. Parker Barnes, Jr., of Beaufort, for appellants Leo Zabinski and John Brainard.

Terry A. Finger, of Finger, Taylor & Andrews, of Hilton Head, for respondents Henry Massey and Bright Acres Associates.

J. Ray Westmoreland, of Hilton Head, for respondent Estate of John Leutwiler.

Susan Taylor Wall, and Mary Legare Hughes, both of Nexsen, Pruet, Jacobs, Pollard & Robinson, LLC, of Charleston, for third-party defendant Bullard.

TOAL, Chief Justice:

In this partnership dispute, three partners appeal from an Order denying arbitration.

FACTUAL/PROCEDURAL BACKGROUND

Bright Acres Associates ("Bright Acres") was a partnership consisting of the following four equal partners: John Leutwiler ("Leutwiler"), Henry Massey ("Massey"), John Brainard ("Brainard"), and Leo Zabinski ("Zabinski"). The partnership was created in 1980 in order to buy, renovate, and sell thirty apartments and approximately twenty-six acres of land on Hilton Head Island. J. Ray Westmoreland ("Westmoreland"), attorney for Leutwiler's estate ("Respondent"), prepared the partnership agreement, which expressly provided for arbitration of all controversies or claims arising out of the partnership agreement. However, the face of the partnership agreement was not stamped to that effect as required by the South Carolina Arbitration Act, S.C.Code Ann. § 15-48-10(a) (Supp. 2000).

On October 20, 1998, after Leutwiler's death, Massey expressly agreed to purchase Leutwiler's 25% interest in the partnership. Westmoreland prepared the purchase agreement. Massey failed to make all payments required by the written purchase agreement. Massey and Respondent disagreed as to what percentage, if any, Massey acquired in Leutwiler's original 25% of the partnership. Because of this dispute, Massey and Westmoreland disagreed as to the amount of distributions that were to be made to each partner once the partnership dissolved.

On September 8, 1998, Zabinski and Brainard ("Appellants") commenced a pro se action seeking arbitration of the distribution and other partnership disputes. After Respondent moved to make Appellants' original Complaint more definite and certain, Appellants retained Attorney James M. Herring ("Herring") who amended the original Complaint on March 19, 1999. Herring moved to compel arbitration.

On April 21, 1999, Respondent answered the Amended Complaint, opposing arbitration on the ground the partnership agreement Westmoreland prepared failed to prominently display on its face that it was subject to arbitration. Furthermore, Respondent alleged: (1) the controversies were not subject to arbitration; (2) Massey and his attorney were using their position to deprive Respondent of his partnership interest: (3) the remaining partners failed to provide partnership information; (4) Leutwiler was prevented from exercising any management duties in the partnership; (5) remaining partners failed to account for various funds and assets of the partnership; and (6) remaining partners threatened to withhold partnership benefits unless Leutwiler agreed to a settlement with Massey in regards to the case then on appeal with this Court. Respondent also sought damages against Appellants, Massey, and Massey's attorney.

On June 22, 1999, Respondent moved to have a receiver appointed. On August 12, 1999, Respondent filed and served a Motion to Compel the Return of Funds and Deposit. No sworn testimony was filed in support of these motions.

On August 13, 1999, Judge Kemmerlin held a status conference on the case. Appellants asked the trial court not to rule on any motion other than the motion for arbitration without a hearing. On August 25, 1999, Judge Kemmerlin denied arbitration and issued a temporary restraining order ("TRO"), restraining the partnership from disbursing any more funds and suggesting that the trial court may appoint a receiver in the future.

On September 3, 1999, Appellants moved to alter or amend the trial court's order, and the trial court refused. On March 13, 2000, Judge Kemmerlin recused himself. On March 14, 2000, Appellants served a Notice of Appeal. The following issues are before this Court on appeal:

I. Is Respondent equitably estopped from asserting Appellants are not entitled to arbitration, where Respondent's attorney prepared the partnership agreement and is now asserting the agreement fails to comply with the South Carolina Arbitration Act, S.C.Code Ann. § 15-48-10(a) (Supp.2000)?

II. Did the trial court err in failing to order arbitration because the partnership was engaged in interstate commerce sufficient to invoke the Federal Arbitration Act ("FAA")?

III. Did the trial court err in issuing the TRO without providing proper notice to Appellants?

IV. Did the trial court err in issuing the TRO without any sworn testimony in support thereof?

V. Were Appellants prejudiced because they had no opportunity to demonstrate the allegations contained in the unsworn Motion for the Return of Funds and Deposit were false?

LAW/ANALYSIS

I. Equitable Estoppel

Appellants argue Respondent is equitably estopped from opposing arbitration because Respondent's attorney, Westmoreland, prepared the partnership agreement with the defective arbitration clause. We disagree.

On December 22, 1980, Westmoreland prepared the partnership agreement for Bright Acres. The partnership agreement provided for arbitration of all claims and controversies arising from the agreement. Paragraph fourteen of the partnership agreement states:

If any controversy or claim arising out of this partnership agreement cannot be settled by the partners, the controversy shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in effect, and judgment on the award may be entered in any court having jurisdiction.

Westmoreland failed to stamp the first page of the partnership agreement with the language required by the South Carolina Arbitration Act, S.C.Code Ann. § 15-48-10(a) (Supp.2000). Section 15-48-10(a) provides:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract and unless such notice is displayed thereon the contract shall not be subject to arbitration.

(emphasis added).

We have strictly construed the notice requirement of section 15-48-10(a). In Soil Remediation Co. v. Nu-Way Envtl., Inc., 323 S.C. 454, 476 S.E.2d 149 (1996), we held the terms of section 15-48-10(a) are clear, and those terms must be applied according to their literal meaning. Id. at 457, 476 S.E.2d at 151. The notice provision in the Soil Remediation contract did not meet the statutory requirement because it was laser-printed and written in all capital letters on the first page of the contract. Id. The notice provision must by typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract. No other variation is acceptable. See also Osteen v. T.E. Cuttino Constr. Co., 315 S.C. 422, 434 S.E.2d 281 (1993) (holding formal requirements of section 15-48-10(a) must be met before the dispute can be subject to arbitration); Timms v. Greene, 310 S.C. 469, 427 S.E.2d 642 (1993) (affirming trial court's finding that section 15-48-10(a) had not been satisfied because the contract did not contain on its first page any mention of arbitration); Circle S. Enters., Inc. v. Stanley Smith & Sons, 288 S.C. 428, 343 S.E.2d 45 n. 1 (Ct.App.1986) (finding a provision of a contract requiring arbitration is not enforceable under state law because notice the contract is subject to arbitration does not appear on its first page as required by section 15-48-10(a)).

Appellants assert Respondent should be equitably estopped from opposing arbitration in this case because Westmoreland prepared the partnership agreement with the defective notice of arbitration. Elements of equitable estoppel as to the party estopped are: (1) conduct by the party estopped which amounts to a false representation or concealment of material facts; (2) the intention that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the true facts. Ingram v. Kasey's Assocs., 340 S.C. 98, 531 S.E.2d 287 n. 2 (2000). Essential elements of estoppel as related to the party claiming the estoppel are: (1) lack of knowledge and of means of knowledge of truth as to facts in question; (2) reliance upon conduct of the party estopped; and (3) prejudicial change in position. Mayes v. Paxton, 313 S.C. 109, 437 S.E.2d 66 (1993). "Estoppel cannot exist if the knowledge of both parties is equal and nothing is done by one to mislead the other." Evins v. Richland County Historic Pres. Comm'n, 341 S.C. 15, 15, 532 S.E.2d 876, 878 (2000).

According to Appellants, "The equitable estoppel is based upon the undisputed facts that...