Sanders v. Savannah Highway Automotive Company ( 2023 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
Cleo Sanders, Respondent,
v.
Savannah Highway Automotive Company, a General
Partnership d/b/a Rick Hendrick Dodge Chrysler Jeep
Ram; Santander Consumer USA Holdings, Inc.; Isiah S.
White; Danny Anderson; and Patrick Bachrodt Jr.,
Defendants,
of which Savannah Highway Automotive Company, a
General Partnership d/b/a Rick Hendrick Dodge Chrysler
Jeep Ram, and Isiah S. White are the Petitioners.
Appellate Case No. 2021-000137
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
Appeal from Charleston County
J.C. Nicholson Jr., Circuit Court Judge
Opinion No. 28168
Heard April 28, 2022 – Filed July 26, 2023
REVERSED AND VACATED
John Thomas Lay Jr. and Jessica Waller Laffitte, of
Gallivan, White & Boyd, PA, of Columbia, for Petitioners.
C. Steven Moskos, of C. Steven Moskos, PA, of
Charleston, and Brooks Robert Fudenberg, of Law Office
of Brooks R. Fudenberg, LLC, of Charleston, for
Respondent.
James Y. Becker and Robert Lawrence Reibold, of
Haynsworth Sinkler Boyd, P.A., of Columbia, for Amicus
Curiae the South Carolina Automobile Dealers
Association.
JUSTICE JAMES: The Federal Arbitration Act1 (FAA) sometimes requires the
arbitrator to decide not only the merits of a dispute but also the gateway question of
whether the dispute is arbitrable in the first instance. Petitioners Rick Hendrick
Dodge Chrysler Jeep Ram (Rick Hendrick Dodge) and Isiah White contend this is
such a case. Specifically, Petitioners argue the arbitrator—not the circuit court—
must decide whether they can enforce an arbitration provision in a contract even
after that contract has been assigned to a third party. The court of appeals rejected
this argument and affirmed the circuit court's determinations that (1) the circuit court
was the proper forum for deciding the gateway question of whether the dispute is
arbitrable and (2) Petitioners could not compel arbitration because Rick Hendrick
Dodge assigned the contract to a third party. Sanders v. Savannah Highway Auto.
Co., 432 S.C. 328, 332-34, 852 S.E.2d 744, 746-47 (Ct. App. 2020).
We hold the Prima Paint2 doctrine requires the arbitrator to decide whether
the assignment extinguished Petitioners' right to compel arbitration. Therefore, we
reverse the court of appeals' decision and vacate the circuit court's discovery order.
Background
In August 2012, Cleo Sanders purchased a vehicle from Rick Hendrick
Dodge. Sanders and Rick Hendrick Dodge closed the deal by executing a retail
installment sales contract (RISC) containing an arbitration provision. A portion of
the arbitration provision provides:
Any claim or dispute, whether in contract, tort, statute or otherwise
(including the interpretation and scope of this Arbitration Clause, and
1
9 U.S.C. § 1 et seq.
2
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
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 or condition of this vehicle, this
contract, or any resulting transaction or relationship (including any such
relationship with third parties who do not sign this contract) shall, at
your or our election, be resolved by neutral, binding arbitration and not
by a court action.
Sanders alleges Rick Hendrick Dodge contacted Santander Consumer USA
Holdings, Inc. (Santander) in an effort to assign the RISC to Santander. Among
other allegations of wrongdoing, Sanders alleges Rick Hendrick Dodge
misrepresented his income to Santander, thus causing Santander to accept an
assignment of the RISC. Sanders contends that as a result of Rick Hendrick Dodge's
wrongful acts, he had a monthly payment that was thirty-seven percent of his true
pretax monthly income. Sanders did not make timely payments under the RISC, so
Santander repossessed the vehicle. Sanders commenced this action against Rick
Hendrick Dodge, Santander, Isiah White, Danny Anderson, and Patrick Bachrodt.3
Petitioners answered and moved to stay or dismiss the case and compel
arbitration.4 Sanders then moved to compel discovery. Sanders argued Petitioners
could not compel arbitration because Rick Hendrick Dodge assigned in full its rights
and interests under the RISC to Santander. Petitioners acknowledged Rick Hendrick
Dodge "fully assigned" the RISC to Santander but claimed the arbitrator—not the
circuit court—should decide the gateway question of whether the arbitration
provision is enforceable. The circuit court determined it was the proper forum for
deciding the gateway arbitrability question and ruled on the merits of Sanders'
challenge to arbitration. On the gateway arbitrability question, the circuit court
determined that although the FAA applied, South Carolina law governed "the
enforceability of the arbitration clause." The circuit court ruled that because Rick
Hendrick Dodge assigned "all of its interests in the [RISC] to Santander," Petitioners'
right to compel arbitration was extinguished. The circuit court denied Petitioners'
motion to compel arbitration, and Petitioners appealed.
A few weeks after Petitioners appealed, the circuit court granted Sanders'
motion to compel discovery. The circuit court ordered Rick Hendrick Dodge to
respond to Sanders' discovery requests in thirty days and ruled Rick Hendrick Dodge
3
White, Anderson, and Bachrodt were representatives of Rick Hendrick Dodge.
4
The circuit court granted Sanders' motion to dismiss Santander from the case
without prejudice.
would waive its right to arbitration by responding to discovery. Petitioners appealed
the discovery order.
The court of appeals consolidated the appeals and affirmed the circuit court.
Sanders, 432 S.C. at 331, 852 S.E.2d at 745. Like the circuit court, the court of
appeals held Petitioners could not compel arbitration after the assignment: "Because
Rick Hendrick Dodge assigned the RISC to Santander, we find all alleged rights
arising from the contract, including the right to have an arbitrator determine the
arbitrability of the action and the right to arbitrate, were extinguished as to
[Petitioners]." Id. at 334, 852 S.E.2d at 746-47. Apart from the passing mention of
Rick Hendrick Dodge's "right to have an arbitrator determine the arbitrability of the
action[,]" the court of appeals did not discuss Petitioners' argument that the arbitrator
should decide that gateway question. The court of appeals also held the circuit court
had authority to issue the discovery order.
The court of appeals denied Petitioners' petition for rehearing and suggestion
for rehearing en banc. We granted Petitioners a writ of certiorari to review the court
of appeals' decision.
Discussion
Petitioners contend the court of appeals erred in affirming the circuit court's
arbitration ruling. We review this issue de novo. See Chassereau v. Global-Sun
Pools, Inc., 363 S.C. 628, 631, 611 S.E.2d 305, 307 (Ct. App. 2005) ("Appeal from
the denial of a motion to compel arbitration is subject to de novo review.").
However, we must honor the factual findings of the circuit court pertinent to its
arbitration ruling if those findings are reasonably supported by evidence in the
record. Partain v. Upstate Auto. Grp., 386 S.C. 488, 491, 689 S.E.2d 602, 603
(2010).
Our holding in this case is not controlled by what Petitioners refer to in their
brief as the "heavily-favored arena of arbitration." We recently addressed the notion
that the law "favors" arbitration in Palmetto Construction Group, LLC v. Restoration
Specialists, LLC, 432 S.C. 633, 856 S.E.2d 150 (2021). We noted: "[O]ur statements
that the law 'favors' arbitration mean simply that courts must respect and enforce a
contractual provision to arbitrate as [they] respect[] and enforce[] all contractual
provisions. There is, however, no public policy—federal or state—'favoring'
arbitration." Id. at 639, 856 S.E.2d at 153.
I. Arbitration Appeal
Petitioners do not ask this Court to reverse the court of appeals' holding that
the assignment extinguished their right to arbitration. While Petitioners assert—in
their brief and during oral argument—their right to arbitration was not extinguished
by the assignment, 5 Petitioners ask this Court to hold only that the FAA requires the
arbitrator to decide the gateway question of whether the assignment extinguished
their right to arbitration.
Petitioners raise two arguments in support of their position that the arbitrator
must decide Sanders' challenge to arbitration. First, they claim that because Sanders
did not specifically challenge the validity of the arbitration provision, the Prima
Paint doctrine requires the arbitrator to resolve Sanders' challenge. Second,
Petitioners contend the parties contracted for the arbitrator to resolve Sanders'
challenge to arbitration by including a delegation clause in their agreement. We
begin our analysis with a review of general FAA provisions concerning arbitrability.
A. The FAA and Gateway Arbitration Issues
The parties concede Sanders' transaction with Rick Hendrick Dodge involved
interstate commerce and is, therefore, governed by the FAA. The FAA provides:
A written provision in . . . 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. The FAA recognizes arbitration agreements "may be invalidated by
'generally applicable contract defenses, such as fraud, duress, or unconscionability.'"
Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (quoting Doctor's Assocs.,
Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Here, Sanders' challenge—or
defense—to arbitration is that Petitioners lost the right to arbitration after Rick
Hendrick Dodge assigned the RISC to Santander.
5
Petitioners claim the assignment of a contract containing an arbitration provision
does not always extinguish the assignor's right to arbitration. Specifically,
Petitioners contend they retained the right to arbitration after assignment because of
a "survival clause" in the arbitration provision. These arguments are for the
arbitrator to resolve.
When one party challenges another party's right to invoke an arbitration
provision, the gateway question sometimes becomes: Does the court or the arbitrator
decide whether the dispute is arbitrable? See Peabody Holding Co. v. United Mine
Workers of Am., Int'l Union, 665 F.3d 96, 101 (4th Cir. 2012) ("Arbitrability disputes
often necessitate a two-step inquiry. First, we determine who decides whether a
particular dispute is arbitrable: the court or the arbitrator. Second, if we conclude
that the court is the proper forum in which to adjudicate arbitrability, we then decide
whether the dispute is, in fact, arbitrable." (citation omitted)). Under the FAA, the
presumptive answer is that the court—rather than the arbitrator—resolves gateway
questions of arbitrability such as whether an arbitration provision is enforceable and
whether the provision applies to a particular dispute. Doctor's Assocs., Inc. v.
Alemayehu, 934 F.3d 245, 250-51 (2d Cir. 2019); see Zabinski v. Bright Acres
Assocs., 346 S.C. 580, 596, 553 S.E.2d 110, 118 (2001) ("The question of the
arbitrability of a claim is an issue for judicial determination, unless the parties
provide otherwise.").
This case represents one instance in which the Prima Paint doctrine renders
muddy what should be clear. Petitioners cite two situations in which the arbitrator
must decide certain gateway questions. First, in Prima Paint and subsequent
decisions, the United States Supreme Court held challenges to the contract
containing an arbitration provision (sometimes referred to as the "container
contract") are for the arbitrator to decide, while challenges to the arbitration
provision itself are for the court to decide. See Prima Paint, 388 U.S. at 406;
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006). Second, the
Supreme Court "has consistently held that parties may delegate threshold
arbitrability questions to the arbitrator, so long as the parties' agreement does so by
'clear and unmistakable' evidence." Henry Schein, Inc. v. Archer & White Sales,
Inc., 139 S. Ct. 524, 530 (2019) (quoting First Options of Chi., Inc. v. Kaplan, 514
U.S. 938, 944 (1995)).
B. Prima Paint
The Prima Paint doctrine has been roundly criticized, and some of the caselaw
interpreting and applying the doctrine is unnecessarily muddled. See, e.g., Ingold v.
AIMCO/Bluffs, L.L.C. Apartments, 159 P.3d 116, 121 (Colo. 2007) ("The
'separability doctrine' of Prima Paint has been criticized throughout its 40-year
existence, beginning with Justice Black's heated dissent from the Court's opinion.");
Zeb-Michael Curtin, Rethinking Prima Paint Separability in Today's Changed
Arbitration Regime: The Case for Inseparability and Judicial Decisionmaking in the
Context of Mental Incapacity Defenses, 90 Iowa L. Rev. 1905, 1917 (2005) (noting
legal scholars have "condemn[ed] the [separability] doctrine's consequences"). Even
so, we must apply the Prima Paint doctrine in cases governed by the FAA.
In Prima Paint, the petitioner alleged it was fraudulently induced by the
respondent into entering a contract that contained an arbitration provision. 388 U.S.
at 397-98. The petitioner did not challenge the arbitration provision directly but
instead claimed that because the contract was void, so too was the arbitration
provision. The respondent moved to compel arbitration. Applying the FAA, the
United States Supreme Court held the arbitrator had to resolve the petitioner's claim.
In reaching this decision, the Supreme Court adopted what has become known as the
severability (or separability) doctrine: "[A]rbitration clauses as a matter of federal
law are 'separable' from the contracts in which they are embedded[.]" Id. at 402; see
also Sphere Drake Ins. Ltd. v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 31 (2d Cir.
2001). The Supreme Court explained the judiciary's role is constrained by the FAA,
and a "court may consider only issues relating to the making and performance of the
agreement to arbitrate." 388 U.S. at 404. The Supreme Court held that because the
petitioner's claim of fraudulent inducement did not challenge the arbitration
provision specifically, the claim was for the arbitrator to resolve:
If the claim is fraud in the inducement of the arbitration clause itself—
an issue which goes to the making of the agreement to arbitrate—the
federal court may proceed to adjudicate it. But the statutory language
does not permit the federal court to consider claims of fraud in the
inducement of the contract generally.
Id. at 403-04 (cleaned up). The takeaway from Prima Paint is that the scope of the
challenge to a party's right to invoke arbitration is critical.
Since Prima Paint, courts have generally recognized two types of challenges
to arbitration: (1) challenges to the validity of the container contract as a whole and
(2) challenges to the validity of the arbitration provision contained in the contract.
See Rent-A-Ctr., 561 U.S. at 70; Buckeye, 546 U.S. at 444. Under the Prima Paint
doctrine, the arbitrator decides the first type of challenge, and the court decides the
second type. See Rent-A-Ctr., 561 U.S. at 70; Buckeye, 546 U.S. at 445-46.
We have applied the Prima Paint doctrine on several occasions. We recently
stated:
Pursuant to the Prima Paint doctrine, the FAA requires courts to
separate the validity of an arbitration clause from the validity of the
contract in which it is embedded. Munoz v. Green Tree Fin. Corp., 343
S.C. 531, 540, 542 S.E.2d 360, 364 (2001) (citing Prima Paint, 388
U.S. at 395). The validity of the arbitration clause is a matter for the
courts, whereas the validity of the contract as a whole is a matter for the
arbitrator. Buckeye, 546 U.S. at 445-46 ("Unless the challenge is to the
arbitration clause itself, the issue of the contract's validity is considered
by the arbitrator in the first instance.").
Damico v. Lennar Carolinas, LLC, 437 S.C. 596, 608-09, 879 S.E.2d 746, 753
(2022) (cleaned up). We have held the court may hear a claim that an arbitration
provision is unconscionable, but the arbitrator must hear a claim that the contract as
a whole is unconscionable. Compare Smith v. D.R. Horton, Inc., 417 S.C. 42, 48-
49, 790 S.E.2d 1, 4 (2016) (holding the question of whether an arbitration provision
is unconscionable is for the court to decide), with Carolina Care Plan, Inc. v. United
HealthCare Servs., Inc., 361 S.C. 544, 555, 606 S.E.2d 752, 758 (2004) (holding the
arbitrator must hear an unconscionability challenge where the party seeking to avoid
arbitration "failed to allege that it lacked a meaningful choice as to the arbitration
clause specifically"). However, as is often the case, the application of Prima Paint
to a given set of facts is not so simple. Here, the parties seeking to enforce arbitration
had assigned the contract containing the arbitration provision.
1. The Parties' Arguments
Petitioners argue Sanders' challenge to arbitration was not directed to the
arbitration provision specifically. Rather, Petitioners claim Sanders challenged only
their ability to enforce the RISC as a whole, thus making Sanders' challenge one for
the arbitrator to decide. We agree with Petitioners.
Sanders acknowledges he has not challenged the validity of the arbitration
provision specifically. Therefore, it would seem Sanders' challenge is to the contract
as a whole and that the Prima Paint doctrine mandates this challenge be decided by
the arbitrator. Not so fast, says Sanders. Sanders claims that after Rick Hendrick
Dodge assigned the contract to Santander, the agreement between him and Rick
Hendrick Dodge ceased to exist. Sanders claims the court must decide his
challenge—even though it is directed to the contract as a whole. As we will now
explain, Sanders' argument is without merit.
2. Courts Resolve Issues of Contract Formation
As we explained above, there are generally two types of challenges to
arbitration—a challenge to the validity of the container contract as a whole (to be
decided by the arbitrator) and a challenge to the validity of the arbitration provision
therein (to be decided by the court). See Rent-A-Ctr., 561 U.S. at 70; Buckeye, 546
U.S. at 444-46. Some courts have recently held the court must decide a party's
contention that the container contract was never formed in the first place. See, e.g.,
Berkeley Cnty. Sch. Dist. v. Hub Int'l Ltd., 944 F.3d 225, 234 (4th Cir. 2019); Granite
Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 296 (2010); Spahr v. Secco, 330
F.3d 1266, 1272-73 (10th Cir. 2003).
The Supreme Court of Texas confronted a contract formation challenge in In
re Morgan Stanley & Co., 293 S.W.3d 182 (Tex. 2009). There, a Morgan Stanley
client sought to avoid arbitration by claiming she lacked mental capacity to sign
Morgan Stanley contracts containing arbitration provisions. Morgan Stanley argued
the arbitrator had to decide the client's challenge because "the defense of mental
incapacity is an attack on the validity of the contract as a whole[.]" Id. at 185. The
court rejected Morgan Stanley's argument, noting the important distinction between
issues of contract validity and issues of contract formation. The court held that
because issues of contract formation necessarily raise the question of whether an
arbitration agreement was ever created, such issues are for the court to decide. The
court stated challenges to contract formation "add a third discrete category to the
Prima Paint analysis, which includes: (1) a challenge to the validity of the contract
as a whole, (2) a challenge to the validity of the arbitration provision itself, and (3)
a challenge to whether any agreement was ever concluded." Id. at 187. The court
explained that while the first challenge is for the arbitrator, the second and third
challenges are for the court.
Other courts have also held the Prima Paint doctrine does not prevent a court
from deciding various challenges contract formation. Melaas v. Diamond Resorts
U.S. Collection Dev., LLC, 953 N.W.2d 623, 632-33 (N.D. 2021); see, e.g., Sandvik
AB v. Advent Int'l Corp., 220 F.3d 99, 107 (3d Cir. 2000) (holding a court had to
decide whether a representative possessed authority to bind his principal to a contract
containing an arbitration provision); Sanford v. MemberWorks, Inc., 483 F.3d 956,
962 (9th Cir. 2007) (stating courts are "required to rule upon . . . contract formation
issue[s] before compelling arbitration"). The rationale of these decisions is
obvious—arbitration is a matter of consent, and courts can only order arbitration
when they are satisfied the parties agreed to arbitrate a dispute. Granite Rock, 561
U.S. at 299. Accordingly, the court is always the proper body to determine whether
the parties agreed to arbitrate in the first instance. Id. at 299-300; Melaas, 953
N.W.2d at 633 ("If the contract containing the arbitration agreement was never
formed and therefore does not exist, then the parties never agreed to arbitrate.");
MZM Constr. Co. v. N.J. Bldg. Labs. Statewide Benefit Funds, 974 F.3d 386, 400
(3d Cir. 2020) ("Lack of assent to the container contract necessarily implicates the
status of the arbitration agreement, when the container contract and the arbitration
provision depend on the same act for their legal effect.").
3. Sanders' "Continued Existence" Argument Is Misplaced
It is clear courts must determine issues of contract formation. If Sanders
challenged arbitration by claiming the contract was never formed (e.g., because he
never signed it or because there was no meeting of the minds), the court would
decide the gateway question of arbitrability. But Sanders does not challenge contract
formation. Instead, Sanders claims the court must determine whether the contract
continued to exist after a certain point in time—even when, as here, the parties
concede a valid contract was originally formed. We disagree with Sanders.
Some cases include language that, on the surface, appears helpful to Sanders'
argument. For instance, courts often state that they—rather than arbitrators—must
determine whether a contract exists. However, a closer review of these cases shows
courts were addressing the question of whether a contract existed in the first place,
not whether the contract continued to exist after a certain point. See, e.g., Will-Drill
Res., Inc. v. Samson Res. Co., 352 F.3d 211, 219 (5th Cir. 2003) (stating the court
must resolve an attack to "the very existence of an agreement" where a party claims
that not all parties signed the agreement containing the arbitration provision); Sphere
Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001) (stating the
arbitrator cannot resolve an "argument that the contract does not exist" where a party
challenges an agent's authority to bind him to a contract containing arbitration
provision); Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, Inc., 185 P.3d
332, 400 (Mont. 2008) (stating "the court is the proper body to hear a challenge to
the existence of a contract containing an arbitration provision" where a party
challenges arbitration on the ground that a condition precedent to the creation of a
container contract did not occur).
One case speaks more directly to the issue before us. In Large v. Conseco
Finance Servicing Corp., the United States Court of Appeals for the First Circuit
rejected an argument similar to the one Sanders advances. 292 F.3d 49, 52 (1st Cir.
2002). The Larges borrowed money from Conseco and signed a loan agreement
containing an arbitration provision. A year later, the Larges told Conseco they were
rescinding the loan agreement on the ground that Conseco failed to accurately
disclose the applicable interest rate. When Conseco responded that it made adequate
disclosures and rescission was not appropriate, the Larges filed suit in district court.
Conseco moved to compel arbitration, and the Larges opposed on the ground that
the arbitration provision had been automatically rescinded—along with the
remainder of the loan agreement—when they gave Conseco notice of rescission.
The district court granted Conseco's motion to compel arbitration, ruling the matter
was for the arbitrator "absent an attack on the specific arbitration clause included
within a contract[.]" Id.On appeal, the Larges advanced much the same argument Sanders makes here.
They claimed that because the "loan agreement ceased to exist . . . so did the
arbitration clause embedded in it." Id. The Larges further claimed the district court
"overlooked the recent clarifications by the majority of circuits, which found that the
[Prima Paint severability] doctrine does not apply to allegations of nonexistent
contracts." Id. at 53 (alteration in original). The First Circuit rejected this argument:
[T]he Larges cite cases involving allegations that the contract with the
arbitration clause never existed. The "clarification" of Prima Paint in
these cases does not bear on a dispute over a purported rescission of a
contract that is acknowledged to have once existed[] but is alleged to
have been rescinded subsequently.
Id. The First Circuit concluded the Larges' allegation of a non-existent contract was
immaterial to the Prima Paint analysis. Because the challenge to arbitration was
directed at the loan agreement as a whole, the First Circuit held the challenge was
for the arbitrator to decide.
We agree with the First Circuit and reject Sanders' "contract existence"
argument for two reasons. First, Sanders' argument rests on a misreading of contract
formation cases; there is no support for the conclusion that a challenge to the
continued existence of a container contract is for the court to decide under the Prima
Paint doctrine. Second, there is good reason to treat a challenge to the original
formation of a container contract differently from a challenge to the continued
existence of the contract. As stated above, a challenge to the original formation of
the container contract necessarily raises the question of whether the parties ever
agreed to arbitrate. See Granite Rock, 561 U.S. at 299-300. Because arbitration is
strictly a matter of consent, it would be illogical for the arbitrator to resolve such a
challenge. See id.; All Am. Ins., 256 F.3d at 591. On the other hand, continued
contract existence cases—like the one before us—typically present no such risk of
sending a party to arbitration when that party never agreed to arbitration.
Here, Sanders does not challenge the validity of the arbitration provision
itself—for example, he does not argue the provision is unconscionable or that it
expires on some express condition. Sanders concedes the arbitration provision
would ordinarily require arbitration of the claims he makes against Petitioners.
However, Sanders argues Petitioners' assignment of the contract to Santander
divested Petitioners of all rights under the contract. This is a challenge to the
continuing validity of the contract as a whole. Therefore, Prima Paint requires the
arbitrator to decide whether Petitioners retained the right to compel arbitration after
assignment.
As did the court of appeals, the dissent relies upon In re Wholesale Grocery
Products Antitrust Litigation, 97 F. Supp. 3d 1101, 1106 (D. Minn. 2015), aff'd, 850
F.3d 344 (8th Cir. 2017), in support of the general conclusion that an assignment
erases the assignor's right to compel arbitration. The Wholesale Grocery court noted
that "where a party assigns agreements that include an arbitration clause, the
assignor's 'right to compel arbitration under those agreements is extinguished.'" Id.(quoting HT of Highlands Ranch, Inc. v. Hollywood Tanning Sys., Inc., 590 F. Supp.
2d 677, 684-85 (D.N.J. 2008)). However, the courts in Wholesale Grocery and HT
of Highlands Ranch were not asked to address, nor did they address, the question of
whether the arbitrator or the court decides the gateway question of arbitrability. 6
B. Delegation Clause
In light of our holding, we need not consider Petitioners' delegation clause
argument. See Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613,
518 S.E.2d 591, 598 (1999) (providing that an appellate court need not address
remaining issues when the resolution of a prior issue is dispositive). 7
C. Discovery Appeal
Because we reverse the court of appeals on the gateway issue of arbitrability,
we vacate the circuit court's discovery order.
6
The court of appeals cited Kennamer v. Ford Motor Credit Co., 153 So.3d 752,
762-63 (Ala. 2014), for the basic proposition that assignment of a contract containing
an arbitration provision bars the assignor from enforcing the provision. However,
the Kennamer court was not asked to address, nor did it address, the gateway Prima
Paint question of whether the court or the arbitrator decides whether a dispute is
arbitrable.
7
Petitioners argue the court of appeals improperly created a blanket rule that an
assignment always extinguishes the assignor's right to compel arbitration. Because
we have reversed the court of appeals, there is no reason to address this argument.
The arbitrator will have to determine whether this particular assignment
extinguished Petitioners' right to arbitration.
Conclusion
The Prima Paint doctrine is not the model of clarity; however, as applied to
this case, the doctrine requires us to hold that the arbitrator must decide the gateway
question of whether Petitioners retained the right to compel arbitration after
assignment of the RISC. We reverse the court of appeals' decision and vacate the
circuit court's discovery order.
REVERSED AND VACATED.
FEW, J., and Acting Justice Aphrodite K. Konduros, concur. Acting Justice
Kaye G. Hearn, dissenting in a separate opinion in which Acting Justice James
E. Lockemy, concurs.
Acting Justice Kaye G. Hearn: I agree with the majority's discussion of the general
principles governing arbitration, but I disagree that the answer to the threshold
question of whether this dispute is subject to arbitration is for the arbitrator to decide.
Because I believe well-established law establishes that the contractual assignment
from Rick Hendrick Dodge to Santander Consumer USA Holdings, Inc.
extinguished any enforceable rights by Rick Hendrick Dodge, there is nothing left
to enforce, including the arbitration provision. I understand Prima Paint requires
that the arbitration provision is severable, but once Rick Hendrick Dodge assigned
its rights under the contract, I do not believe severability can save the day because
Rick Hendrick Dodge is not the party that may enforce the contract.
I disagree with the majority's characterization of the cases the court of appeals
relied on in concluding that the gateway question of arbitrability in this case was for
the circuit court. The court of appeals relied in part on In re Wholesale Grocery
Product Antitrust Litigation, a case involving allegations of antitrust violations by
some of the largest wholesale grocers in the country. 97 F. Supp. 3d 1101, 1106 (D.
Minn. 2015). In that multi-district litigation, the federal district court noted,
"[W]here a party assigns agreements that include an arbitration clause, the assignor's
'right to compel arbitration under those agreements is extinguished.'" Id. (quoting HT
of Highlands Ranch, Inc. v. Hollywood Tanning Sys., Inc., 590 F.Supp.2d 677, 684-
85 (D.N.J. 2008)). Pointedly, the court stated, "the issue is not whether the right to
arbitrate survives, but rather who is entitled to assert that right." Id. The court
concluded the defendants were no longer signatories of the arbitration agreement
because "they voluntarily and unconditionally transferred" the rights under the
arbitration agreement. Id. As a result, they were not entitled to enforce the arbitration
agreement.
On appeal to the Eighth Circuit, the court affirmed. 850 F.3d 344, 350-51 (8th
Cir. 2017). The Eighth Circuit rejected the defendants' position that an assignment
should be treated the same as when a contract is terminated, the latter being that a
party generally retains the right to arbitrate claims that are based on conduct that
occurred during the life of the contract. Id. at 349. Instead, the court stated, "We see
no reason to extend a presumption about what rights and obligations the parties to a
contract might have intended to keep after the contract expired to a situation where
a party has affirmatively given up—indeed, sold—everything it had under the
contract." Id. at 349-50 (cleaned up). The court also concluded, "[I]t is the assignors,
not their assignees, claiming a right to compel arbitration. The clear consequence
. . . is that the assignors—in this case, the nonsignatory wholesalers—should have
nothing left to enforce, since 'all of [their] remaining rights' were 'assumed' by
someone else." Id. at 350 (quoting Koch v. Compucredit Corp., 543 F.3d 460, 466
(8th Cir. 2008)).
Like the decision from the federal court in Minnesota, the court of appeals in
this case also relied on HT of Highlands Ranch, Inc. v. Hollywood Tanning Systems,
Inc., 590 F. Supp. 2d 677 (D.N.J. 2008). There, operators of four franchisees of a
national tanning business entered into a contract with the franchisor, which
subsequently assigned its rights to another entity. Id. at 679. After the operators filed
a lawsuit against the franchisor and others raising numerous allegations, the
defendants filed a motion to dismiss the claims and compel arbitration. Id. at 683.
The court denied the motion to dismiss and refused to compel arbitration, noting, "In
light of the fact that, prior to the commencement of this action, Defendant HTS
assigned its rights and obligations under the franchising agreements to Defendant
HT Franchising . . . the Court cannot, at this stage, conclude that 'a valid agreement
to arbitrate [presently] exists' between HTS and Plaintiffs." Id. at 684 (internal
citation omitted).8 The court concluded, "[I]f, as Plaintiffs appear to allege in the
Amended Complaint, HTS assigned the entirety of its rights under the
franchise agreements to HT Franchising, its right to compel arbitration under those
agreements 'is extinguished.'" Id. at 684-85 (quoting Restatement (Second) of
Contracts § 317(1)). The court acknowledged that the successor in interest would
retain the right to compel arbitration, just as Santander could compel arbitration in
this case over claims subject to the arbitration clause.
I agree with the court of appeals that these cases are persuasive because they
apply the same general principle of contract law—that an assignment extinguishes
the rights and obligations under an agreement once transferred to a third party.
Restatement (Second) of Contracts § 317 (1981) ("An assignment of a right is a
manifestation of the assignor's intention to transfer it by virtue of which the
8
I disagree that this case does not concern the question of "who decides." First, the
circuit court denied the motion to compel arbitration, noting "As the following
discussion makes clear, the Court denies the HTS Defendants' motion on the narrow
grounds that the validity of an existing arbitration agreement between HTS and
Plaintiffs is a live question in this case." Id. at 684 n.6. Second, the court stated many
of the plaintiffs' remaining arguments against compelling arbitration concerned the
contract as a whole, and thus would be for the arbitrator to resolve. Id. This
demonstrates the court treated the issue of the assignment's effect as a threshold
question for the court to resolve while the remaining arguments would be for an
arbitrator to decide, and thus, I disagree that it is not relevant to the question before
the Court.
assignor's right to performance by the obligor is extinguished in whole or in part and
the assignee acquires a right to such performance."). Accordingly, I believe the
majority places too fine a point on the slight distinction between whether an
agreement to arbitrate ever existed versus if one continues to exist. To be sure, there
are instances when a nonsignatory may be compelled to arbitrate a dispute. See
Wilson v. Willis, 426 S.C. 326, 338, 827 S.E.2d 167, 174 (2019) ("South Carolina
has recognized several theories that could bind nonsignatories to arbitration
agreements under general principles of contract and agency law, including (1)
incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego,
and (5) estoppel."). However, I would follow the general rule that an assignment
extinguishes the rights under a contract, and without an agreement to enforce, it
follows that the circuit court must generally resolve this threshold question. Henry
Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019) ("To be sure,
before referring a dispute to an arbitrator, the court determines whether a valid
arbitration agreement exists.").9 Accordingly, I respectfully dissent.
Acting Justice James E. Lockemy, concurs.
9
I acknowledge parties may delegate gateway issues to an arbitrator that typically
would be for a court to decide. Henry Schein, Inc., 139 S. Ct. at 530 ("[A] court may
not decide an arbitrability question that the parties have delegated to an arbitrator.").
While this particular contract contained a delegation clause, Rick Hendrick Dodge
failed to preserve the significance of this clause for appeal. Although it raised the
delegation clause to the circuit court, the court did not rule on it and there was no
Rule 59(e) motion filed. I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 422,
526 S.E.2d 716, 724 (2000) ("If the losing party has raised an issue in the lower
court, but the court fails to rule upon it, the party must file a motion to alter or amend
the judgment in order to preserve the issue for appellate review.").