Two key points in an agreement to arbitrate disputes are the choice of law and limitation on remedies available. The recent decision by the South Carolina Court of Appeals in 315 Corley CW LLC v Palmetto Bluff Development, LLC , Appellate Case No. 2022-001587 (November 13, 2024), threw out an arbitration agreement in an interpretation of South Carolina law which could be of great interest to our friends and clients, whether they want to maximize the possibility of enforcing an arbitration agreement or might want to avoid one.
Corley was a dispute about the enforceability of an arbitration clause in the Club Membership Agreement for the Palmetto Bluff Club. Anyone buying property in Palmetto Bluff is required to join the Club and execute the Club Membership Agreement, which states that it is subject to arbitration under the South Carolina version of the Uniform Arbitration Act and contains many terms favorable to the Club – notably, the Club’s power to modify the agreement unilaterally. And, like many arbitration clauses, the arbitration agreement prohibited the award of treble damages and punitive damages.
Club members and others brought suit in circuit court challenging changes the Club planned to make that would limit access to and use of the Club facilities by short-term renters. They then asked the court to invalidate the arbitration clause as unconscionable because it prevented treble damages. The circuit court agreed, and the Court of Appeals affirmed.
This case shows the importance of choice of law language when drafting agreements with arbitration clauses. The Court of Appeals said that the choice of South Carolina law in the contract meant that the parties had agreed not to apply the provisions of the Federal Arbitration Act, which meant that the trial court, rather than the arbitrator, had jurisdiction to resolve the unconscionability issue – even though the arbitration clause stated that the rules of the American Arbitration Association (which would have allocated that decision to the arbitrator) would apply to any dispute.
Corley also shows the importance of carefully considering any limitation of remedies. The Court of Appeals found the arbitration clause unconscionable because the plaintiffs lacked any “meaningful choice in entering the agreement” and the agreement contained “oppressive and one-sided” terms that no reasonable person would accept. The contract gave the Club the unilateral right to modify any provision at will and, furthermore, denied the plaintiffs the treble damages that they claimed under the South Carolina Unfair Trade Practices Act. The Court of Appeals concluded that, even though the plaintiffs were “wealthy purchasers of secondary homes,” they were in an “unequal bargaining position” vis-a-vis the seller of the real estate and had no “meaningful choice” as to the arbitration agreement.
