Masters v. KOL, Inc. ( 2020 )

THE STATE OF SOUTH CAROLINA
In The Court of Appeals
Casey Masters, Respondent,
v.
KOL, Inc. d/b/a Kia of Greenville, Appellant.
Appellate Case No. 2017-002259
Appeal From Greenville County
R. Scott Sprouse, Circuit Court Judge
Opinion No. 5746
Submitted May 8, 2020 – Filed July 22, 2020
REVERSED AND REMANDED
Bradford Neal Martin and Laura Wilcox Howle Teer, of
Bradford Neal Martin & Associates, PA, of Greenville,
for Appellant.
Jason James Andrighetti, of Culbertson Andrighetti,
LLC, of Greenville, for Respondent.
GEATHERS, J.: In this breach of contract action, Appellant KOL, Inc. (Dealer)
seeks review of the circuit court's order denying its motion to compel arbitration.
Dealer argues the circuit court erred by declining to compel arbitration on the ground
that Dealer's execution of certain contracts with Respondent Casey Masters
(Purchaser) after Purchaser filed this action rendered the parties' April 10, 2017
arbitration agreement moot and unenforceable. We reverse and remand for an order
compelling arbitration.1
FACTS/PROCEDURAL HISTORY
On April 10, 2017, Purchaser and Dealer entered into an agreement for the
purchase of a new 2017 Kia Forte at a price of $21,049. The parties' agreement
included Purchaser's $500 down payment and a $5,149 trade-in allowance for
Purchaser's 2002 Chevrolet Cavalier. The purchase order, which was signed by both
parties, included a provision allowing the Dealer to cancel the agreement if Dealer
was unable to assign any accompanying retail installment sales contract (RISC) to a
third-party lender. This provision also included Purchaser's acknowledgement that
(1) Dealer was permitting Purchaser to take "conditional delivery and possession"
of the vehicle, i.e., Purchaser's possession of the vehicle was conditioned on Dealer's
ability to sell or assign any existing RISC to a third-party lender; (2) any material
misrepresentation in Purchaser's credit application would allow Dealer to declare the
entire balance under the purchase order immediately due and payable; and (3) "no
one at the dealership" coerced Purchaser to provide false information.
Further, a statement near the top of the purchase order's first page indicates in
bold, underlined print,
NOTICE: THIS AGREEMENT IS SUBJECT TO
BINDING ARBITRATION PURSUANT TO THE
FEDERAL ARBITRATION ACT ("FAA")
9 U.S.C. § 1, ET SEQ., OR IF AND ONLY IF THE
FAA DOES NOT APPLY, THEN PURSUANT TO
THE SOUTH CAROLINA UNIFORM
ARBITRATION ACT, S.C. CODE ANN. § 15-48-10,
ET SEQ. THE TERMS AND CONDITIONS OF
ARBITRATION ARE CONTAINED IN THE
DEALERSHIP'S ARBITRATION POLICIES AND
PROCEDURES.
1
We decline to address Purchaser's additional sustaining grounds. See I'On, L.L.C.
v. Town of Mt. Pleasant, 338 S.C. 406, 420, 526 S.E.2d 716, 723 (2000) ("It is within
the appellate court's discretion whether to address any additional sustaining
grounds.").
The last sentence in the Purchase Order states, "[Purchaser] hereby acknowledges
that he/she has thoroughly read this Purchase Order[ and] understands and agrees
with its terms, including the fact [that] this agreement is subject to binding
arbitration. [Purchaser] has received a completely filled in copy of this order and
agreement."
The parties also signed a separate document entitled "Arbitration Agreement,"
which sets forth the scope of arbitrable claims, the method of selecting an arbitrator,
the right to self-help remedies, the location and costs of arbitration, and conditions
for seeking a new arbitration. The following language sets forth the scope of
arbitrable claims:
Any claim, counterclaim, third party claim, cross-claim,
dispute or controversy between Dealer and [Purchaser], as
well as between [Purchaser] and Dealer's employees,
agents, affiliate companies or persons, successors and
assigns, whether in contract, tort or otherwise, which arise
out of or relate to [Purchaser's] credit application,
purchase, lease, financing, condition of the vehicle, or any
resulting transaction or relationship (including any such
relationship with third parties who do not sign your
purchase or finance contract), or the validity,
enforceability, or scope of this Agreement, shall be
resolved by neutral, binding arbitration.
(emphases added). The agreement also includes the following statements: "This
Agreement evidences a 'transaction involving commerce' under the Federal
Arbitration Act ('FAA'), 9 U.S.C. §§ 1-16[,] and shall be governed by the FAA. If
and only if the FAA does not apply, then [this Agreement shall be governed] by any
applicable state law concerning arbitration." The agreement also provided that it
would "survive the termination of any and all of [Purchaser's] business with Dealer."
According to Purchaser, the parties executed a RISC to finance the purchase,
and Dealer attempted to assign its interest in the RISC to Crescent Bank (Crescent).
According to Richard Canova, Dealer's Finance and Insurance Manager, Purchaser
was aware that completion of the purchase was contingent on "approval of
financing." Subsequently, Dealer declined to finance the purchase because Dealer's
attempt to assign its interest in the RISC to Crescent failed.
On May 25, 2017, Purchaser filed this action, alleging that Dealer
misrepresented her income to Crescent, Crescent would not purchase the RISC, and
Dealer breached the RISC. Purchaser also alleged that (1) an employee of Dealer
lied to her about a recall of the 2017 Kia Forte; (2) approximately one week later,
Dealer refused to return the car to Purchaser when she took it to Dealer for servicing;
(3) Dealer rebuffed her demand for the return of her down payment and her trade-in
vehicle; (4) Dealer offered Purchaser a loaner vehicle and required her to sign a test
drive agreement; and (5) Dealer kept the personal belongings Purchaser had placed
in the Kia Forte, including her copy of the RISC, and later returned all of the items
except her copy of the RISC.
In her complaint, Purchaser asserted causes of action for breach of contract,
breach of contract accompanied by a fraudulent act, fraud, conversion, trespass to
chattel, violation of the South Carolina Regulation of Manufacturers, Distributors,
and Dealers Act (Dealers Act), violation of the South Carolina Unfair Trade
Practices Act, violation of the South Carolina Consumer Protection Code,
promissory estoppel, violation of the Truth in Lending Act, violation of the Fair
Credit Reporting Act, and violation of the Equal Credit Opportunity Act. According
to counsel, Purchaser served Dealer with the complaint on June 1, 2017.
According to Dealer, it later found a second lender, Global Lending (Global),
to assist in financing the car purchase. The parties executed a second purchase order,
a second RISC, and a second arbitration agreement on June 2, 2017—the second
purchase order reflects a lower price, $15,456, than that reflected in the first purchase
order (a difference of $5,593), but it is otherwise virtually identical to the first
purchase order. The second arbitration agreement is identical to the one executed
by the parties on April 10, 2017, except for the new date. Although Purchaser has
alleged that Dealer did not return the identical Kia Forte to her, the vehicle
identification number on both purchase orders is identical.
On July 26, 2017, Dealer filed a motion to stay and to compel arbitration, and
the circuit court conducted a hearing on Dealer's motion on August 23, 2017. On
that same date, Purchaser filed an affidavit in which she asserted the following: (1)
After she filed her complaint, Dealer's representatives told her (a) they would refund
her down payment, pay off the loan on her trade-in vehicle, and finance a new car
for her; (b) her "new monthly payments would be lower than [her] current monthly
payment"; and (c) she had to return "the loaner vehicle" to Dealer; (2) On June 2,
2017, Purchaser returned the loaner to Dealer and "was taken to an office to sign
new documents to finance a new vehicle, where [she] learned that [her] down
payment would not be refunded that day" and her monthly payments would be
"higher, not lower"; (3) She "was told that [she] had to sign the new contract if [she]
wanted a car" and she "felt pressured to sign the documents they gave [her] because
[she] had no way of getting home without a car[] and [her] children were with [her]";
(4) Over the next few days, Dealer's representatives notified her that they had given
her "the incorrect documents on June 2," she "had to sign new documents," and her
down payment refund was available; (5) She "was sick and distressed[] and went to
the hospital on June 15 for hives and a severe rash" and her doctor was concerned
about her stress level; (6) Dealer's representative continued to call her while she was
at the hospital and told her they would return her down payment if she would "sign
the new documents"; (7) After leaving the hospital, she signed "the new documents"
while she was "under the influence of medicine that affected [her] ability to
understand what [she] was doing"; (8) She did not know what she signed, and Dealer
did not provide copies of the documents to her; and (9) She told Dealer's
representatives that she wanted to speak with counsel first, "but they said they
couldn't give [her] the refund check" if she wanted to speak with counsel.
On October 12, 2017, the circuit court filed an order denying Dealer's motion.
In its order, the circuit court found that the parties "entered into a second contract
for the purchase and financing of a car on or about June 2, 2017" and referenced an
assertion that the parties "entered into a third contract regarding the disputes between
the parties related to the first two contracts." The court concluded that the "execution
of subsequent contracts, as alleged by [Dealer], renders the original agreement and
its Arbitration Agreement[] moot and unenforceable." The circuit court later denied
Dealer's motion to alter or amend the October 12, 2017 order. This appeal followed.
ISSUE ON APPEAL
Did the circuit court err by declining to compel arbitration on the ground that
the April 2017 arbitration agreement was moot and unenforceable?
STANDARD OF REVIEW
"Determinations of arbitrability are subject to de novo review, but if any
evidence reasonably supports the circuit court's factual findings, this court will not
overrule those findings." Pearson v. Hilton Head Hosp., 400 S.C. 281, 286, 733
S.E.2d 597, 599 (Ct. App. 2012).
LAW/ANALYSIS
Dealer argues the circuit court erred by declining to compel arbitration on the
ground that the April 2017 arbitration agreement was moot and unenforceable. We
agree.
Initially, we note there is nothing in the record indicating that Purchaser
amended her May 2017 complaint, which references only the April transactions, to
address the June transactions post-dating the complaint. Also, neither party has
claimed that the June transactions formally settled this action. Yet, both the June
purchase order and the June arbitration agreement include language that effectively
created a novation between the parties. See Moore v. Weinberg, 373 S.C. 209, 217,
644 S.E.2d 740, 744 (Ct. App. 2007) ("A novation is an agreement between all
parties concerned for the substitution of a new obligation between the parties with
the intent to extinguish the old obligation." (quoting Wayne Dalton Corp. v. Acme
Doors, Inc., 302 S.C. 93, 96, 394 S.E.2d 5, 7 (Ct. App. 1990))), aff'd, 383 S.C. 583,
681 S.E.2d 875 (2009). The June purchase order, like the April purchase order,
includes the following language:
This Purchase Order represents the final agreement
between the parties related to the sale of the vehicle and
may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the
parties. Any Retail Installment Contract or other
document executed by [Purchaser] in connection herewith
is simply a means of satisfying [Purchaser's] obligations
under this Purchase Order.
(emphases added). Cf. Burgess v. Jim Walter Homes, Inc., 588 S.E.2d 575, 578
(N.C. Ct. App. 2003) (holding the parties entered into a novation when their 1999
contract superseded their 1997 contract through the use of the following language:
"'This Building Contract, promissory note, deed of trust and the contract documents
executed herewith constitute the entire agreement between the parties hereto with
respect to the transactions contemplated herein, and this Building Contract
promissory note, deed of trust and the contract documents supersede all prior oral
or written agreements, commitments or understandings with respect to the matters
provided for herein'"). Further, the June 2 arbitration agreement, like the April 10
arbitration agreement, states, "This Agreement constitutes the entire agreement of
the parties with respect to its subject matter, is agreed to be the last Agreement
entered into with respect to its subject matter, and supersedes all prior discussions,
arrangements, negotiations and other communications, if any, on dispute
resolution." (emphases added).
In its order, the circuit court found that the parties "entered into a second
contract for the purchase and financing of a car on or about June 2, 2017" and
referenced an assertion that the parties "entered into a third contract regarding the
disputes between the parties related to the first two contracts,"2 attributing the
assertion to Dealer.3 The court concluded that the "execution of subsequent
contracts, as alleged by [Dealer], renders the original agreement and its Arbitration
Agreement[] moot and unenforceable." Because the circuit court's reasoning is
obscure, we can only guess that the parties' novation served as the basis for the circuit
court's conclusion that the "original agreement" and the April arbitration agreement,
as opposed to the entire action, were moot and unenforceable.4 We find this to be
an incongruent, hyper-technical approach to resolving what may be left of the
parties' dispute.5 We conclude the correct approach is to compel arbitration.
"The policy of the United States and of South Carolina is to favor arbitration
of disputes." Parsons v. John Wieland Homes & Neighborhoods of the Carolinas,
Inc., 418 S.C. 1, 6, 791 S.E.2d 128, 131 (2016). Therefore, "the party resisting
arbitration bears the burden of proving that the claims at issue are unsuitable for
arbitration." Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 91 (2000).6
2
We see no evidence in the record of any such contract.
3
The record shows that Purchaser's counsel, rather than Dealer, made this assertion,
and he characterized this "third contract" as a release of Dealer from any liability to
Purchaser.
4
See S.C. Ret. Sys. Inv. Comm'n v. Loftis, 402 S.C. 382, 384, 741 S.E.2d 757, 758
(2013) ("A case is moot where a judgment rendered by the [c]ourt will have no
practical legal effect upon an existing controversy because an intervening event
renders any grant of effectual relief impossible for the [c]ourt. Where there is no
actual controversy, this [c]ourt will not decide moot or academic questions."
(emphasis added) (citations omitted)); see also Moot, Black's Law Dictionary (11th
ed. 2019) ("moot adj. (16c) 1. Archaic. Open to argument; debatable. 2. Having no
practical significance; hypothetical or academic ."); Merriam-Webster Online Dictionary,
Moot, https://www.merriam-webster.com/dictionary/moot (April 15, 2020) ("1 a :
open to question : debatable b : subjected to discussion : disputed 2 : deprived of
practical significance : made abstract or purely academic").
5
We express no opinion on the merits of any cause of action that may have survived
the parties' novation.
6
The Federal Arbitration Act (FAA) provides, in pertinent part, that a written
provision in any "contract evidencing a transaction involving commerce to settle by
Here, the scope of both the first and second arbitration agreements covers not
only their respective accompanying purchase orders and RISCs but also any
resulting transactions or relationships:
Any claim, counterclaim, third party claim, cross-claim,
dispute or controversy between Dealer and [Purchaser], as
well as between [Purchaser] and Dealer's employees,
agents, affiliate companies or persons, successors and
assigns, whether in contract, tort or otherwise, which arise
out of or relate to [Purchaser's] credit application,
purchase, lease, financing, condition of the vehicle, or any
resulting transaction or relationship (including any such
relationship with third parties who do not sign your
purchase or finance contract), or the validity,
enforceability, or scope of this Agreement, shall be
resolved by neutral, binding arbitration.
(emphasis added).7 On the force of this provision alone, the April 2017 arbitration
agreement applies to any cause of action in the present case that may have survived
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 (2018).
"Unless the parties have contracted to the contrary, the FAA applies in federal or
state court to any arbitration agreement regarding a transaction that in fact involves
interstate commerce, regardless of whether or not the parties contemplated an
interstate transaction." Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 538, 542
S.E.2d 360, 363 (2001) (footnote omitted). Here, the parties' transaction involved
the sale and financing of an automobile. Therefore, it involved interstate commerce
and is governed by the FAA. See United States v. Ballinger, 395 F.3d 1218, 1226
(11th Cir. 2005) (identifying automobiles as instrumentalities of interstate
commerce, which are subject to regulation by Congress) (cited in Cape Romain
Contractors, Inc. v. Wando E., LLC, 405 S.C. 115, 122, 747 S.E.2d 461, 464 (2013));
Landers v. Fed. Deposit Ins. Corp., 402 S.C. 100, 108, 739 S.E.2d 209, 213 (2013)
("Generally, any arbitration agreement affecting interstate commerce . . . is subject
to the FAA." (citing 9 U.S.C. § 2)).
7
"Whether a party has agreed to arbitrate an issue is a matter of contract
interpretation and '[a] party cannot be required to submit to arbitration any dispute
[that] he has not agreed so to submit.'" Landers, 402 S.C. at 108, 739 S.E.2d at 213
the novation to the extent that the June 2017 arbitration agreement does not apply.
See Klutts Resort Realty, Inc. v. Down'Round Dev. Corp., 268 S.C. 80, 89, 232
S.E.2d 20, 25 (1977) ("The purpose of all rules of contract construction is to
determine the parties' intention. The courts, in attempting to ascertain this intention,
will endeavor to determine the situation of the parties, as well as their purposes, at
the time the contract was entered into. The court should put itself, as best it can, in
the same position occupied by the parties when they made the contract. In doing so,
the court is able to avail itself of the same light [that] the parties possessed when the
agreement was entered into so that it may judge the meaning of the words and the
correct application of the language." (emphases added) (citation omitted)); U.S.
(quoting Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88,
92 (4th Cir. 1996)). Nonetheless, while the parties' intent is "relevant," it bears
repeating that "as a matter of policy, arbitration agreements are liberally construed
in favor of arbitrability." Id. at 108–09, 739 S.E.2d at 213. This "'heavy presumption
of arbitrability requires that when the scope of the arbitration clause is open to
question, a court must decide the question in favor of arbitration.'" Id. at 109, 739
S.E.2d at 213 (emphasis added) (quoting Am. Recovery, 96 F.3d at 94).
Moreover, "[s]uch a presumption is strengthened when an arbitration clause
is broadly written." Id. "Therefore, 'unless it may be said with positive assurance
that the arbitration clause is not susceptible of an interpretation that covers the
asserted dispute[,]' arbitration must generally be ordered." Id. (quoting Am.
Recovery, 96 F.3d at 92). For example, "[a] clause [that] provides for arbitration of
all disputes 'arising out of or relating to' the contract is construed broadly." Id.
"Courts have held that such broad clauses are 'capable of an expansive reach.'" Id.
at 109, 739 S.E.2d at 214 (quoting Am. Recovery, 96 F.3d at 93).
Our supreme court and the Fourth Circuit Court of Appeals have held that
sweeping language in broad arbitration clauses "applies to disputes in which a
significant relationship exists between the asserted claims and the contract in which
the arbitration clause is contained." Id. "Thus, the scope of the clause does 'not limit
arbitration to the literal interpretation or performance of the contract[, but] embraces
every dispute between the parties having a significant relationship to the contract.'"
Id. at 109–10, 739 S.E.2d at 214 (emphasis added) (quoting J.J. Ryan & Sons, Inc.
v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir. 1988)). "In applying this
standard, th[e appellate c]ourt 'must determine whether the factual allegations
underlying the claim are within the scope of the arbitration clause, regardless of the
legal label assigned to the claim.'" Id. (emphasis added) (quoting J.J. Ryan & Sons,
863 F.2d at 319).
Bank Tr. Nat. Ass'n v. Bell, 385 S.C. 364, 374, 684 S.E.2d 199, 205 (Ct. App. 2009)
("To give effect to the parties' intentions, the court will endeavor to determine the
situation of the parties and their purposes at the time the contract was entered."
(emphasis added)).
Further, both arbitration agreements provide that they "shall survive the
termination of any and all of [Purchaser's] business with Dealer." This language
expresses the parties' intent to retain the option of arbitration even after an event
such as Purchaser's completion of all installment payments or Dealer's transfer of its
right to collect payments to a third party. A novation of the underlying contract
cannot nullify such an agreement. See 30 Williston on Contracts § 76:46 (4th ed.)
("[T]he parties may include within the original contract a provision that they intend
to survive the termination of the contract, such as an arbitration clause; in such a
case, the provision will survive not only the termination of the agreement, but also
its novation and the substitution of a new contract."); id. at § 76:47 ("[A]n arbitration
clause or other remedy contained in the original contract that the parties expressly
agree will survive termination of the agreement will survive a novation as well,
though such a clause has been held applicable only to issues arising in connection
with the original contract, and not to affect the remedies of the parties arising from
the subsequent agreement.").
Based on the foregoing, the parties' April 2017 arbitration agreement is neither
moot nor unenforceable.
Finally, we note that both the first and second arbitration agreements express
the parties' intent that even the enforceability of these arbitration agreements must
be determined by an arbitrator, and Purchaser has not asserted a specific challenge
to this particular provision:
Any claim, counterclaim, third party claim, cross-claim,
dispute or controversy between Dealer and [Purchaser], as
well as between [Purchaser] and Dealer's employees,
agents, affiliate companies or persons, successors and
assigns, whether in contract, tort or otherwise, which arise
out of or relate to [Purchaser's] credit application,
purchase, lease, financing, condition of the vehicle, or any
resulting transaction or relationship (including any such
relationship with third parties who do not sign your
purchase or finance contract), or the validity,
enforceability, or scope of this Agreement, shall be
resolved by neutral, binding arbitration.
(emphasis added). Thus, even the question of whether the June 2017 transactions
rendered the April 2017 arbitration agreement "moot and unenforceable" was a
question for an arbitrator to resolve. See Landers, 402 S.C. at 107, 739 S.E.2d at
213 ("The question of arbitrability of a claim is an issue for judicial determination
unless the parties provide otherwise." (emphasis added) (quoting Partain v. Upstate
Auto. Grp., 386 S.C. 488, 491, 689 S.E.2d 602, 603 (2010))); see also New Prime
Inc. v. Oliveira, 139 S. Ct. 532, 538 (2019) ("A delegation clause gives an arbitrator
authority to decide even the initial question [of] whether the parties' dispute is
subject to arbitration."); Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct.
524, 528 (2019) ("When the parties' contract delegates the arbitrability question to
an arbitrator, the courts must respect the parties' decision as embodied in the
contract."); Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68–69, 69 n.1 (2010)
(stating that parties "can agree to arbitrate 'gateway' questions of 'arbitrability,' such
as whether the parties have agreed to arbitrate or whether their agreement covers a
particular controversy" provided that courts not assume that the parties agreed to
arbitrate arbitrability unless there is clear and unmistakable evidence that they
intended to arbitrate these gateway questions); In re Little, 610 B.R. 558, 565 (Bankr.
D.S.C. 2020) ("[W]hile it is the default procedure for the court to decide [the issues
of whether a valid agreement to arbitrate exists and whether the specific dispute falls
within the agreement's scope], the parties may delegate this determination to an
arbitrator if the parties clearly and unmistakably agree to do so in their arbitration
agreement."); Rent-A-Ctr., 561 U.S. at 72 (concluding that unless the delegation
provision is challenged specifically, the court must treat it as valid and enforce it,
leaving any challenge to the validity of the arbitration agreement as a whole for the
arbitrator). Therefore, the circuit court should have reserved any question
concerning the enforceability of the arbitration agreements for an arbitrator.
CONCLUSION
Accordingly, we reverse the circuit court's order and remand for an order
compelling arbitration.
REVERSED AND REMANDED.8
LOCKEMY, C.J., and HEWITT, J., concur.
8
We decide this case without oral argument pursuant to Rule 215, SCACR.