The South Carolina Supreme Court Says “No.”
Many arbitration agreements contain time limits for making a demand for arbitration. In December, the South Carolina Supreme Court threw out an arbitration agreement containing such a time limit. Huskins v. Mungo Homes, App. Case No. 2023-000452 (December 11, 2024). Whether you are seeking to enforce an arbitration agreement, or want to avoid one, Huskins should be of interest.
Huskins involved the enforceability of an arbitration clause in a home purchase contract. The arbitration clause, like many arbitration clauses, contained language limiting the time within which a demand for arbitration could be made. The clause required that a demand be made “within ninety (90) days after the claim, dispute or other matter in question has arisen” and further provided that any claim not asserted within that time would be “deemed waived and forever barred.” The clause was part of a standard agreement that the homebuilder, Mungo Homes, presented as nonnegotiable. The agreement contained no severability clause, but it did contain a merger clause stating that the contract represented “the entire agreement” of the parties and that it could be amended only in writing.
The Huskins purchased a house from Mungo and later sued in court regarding issues related to the sale. Mungo moved to compel arbitration. The Huskins opposed the motion, asserting that the arbitration clause was “unconscionable and unenforceable” because the clause shortened the statute of limitations in violation of S.C. Code Ann. § 15-3-140, which prohibits and voids any agreement attempting to shorten the legal statute of limitations. The trial court rejected this argument and granted the motion to compel arbitration. The South Carolina Court of Appeals disagreed in part. It found the clause unconscionable and unenforceable but affirmed the order compelling arbitration because the Court of Appeals found that the illegal time limit could be severed from the rest of the arbitration agreement, even though there was no severability clause.
The South Carolina Supreme Court disagreed with the Court of Appeals. While noting that courts may invalidate only part of a contract term as long as the “central purpose” of the agreement does not depend on the illegal part, the Supreme Court ruled that the absence of a severability clause, together with the presence of a merger clause and the fact that Mungo’s contract was nonnegotiable, meant that the time limit was “material.” This prevented the Court from severing the unenforceable time limit.
Because the time limit was illegal, and could not be severed, its presence invalidated the entire arbitration agreement. The Court found the time limit to be “manipulative skirting of South Carolina public policy” and observed that this “weigh[ed] heavily against severance.”
Huskins is a reminder that our courts will carefully scrutinize arbitration language that violates public policy. Especially in the context of standardized agreements, drafters should consider using severance language, or run the risk of invalidation of the entire arbitration clause.
