Construction Law

Arbitration Clause Stricken for Unconscionability

By Ryan McCabe

    In the case of Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663 (S.C. 2007), an issue over the validity of the arbitration clause arose.  The additional terms and agreements section of a consumer automobile purchase contract contained a broad arbitration clause. After suit was filed by the consumer, the dealer filed a motion to stay and to compel arbitration, with the consumer arguing that the arbitration was unconscionable and therefore unenforceable.

    The trial court denied the dealer?s motion to compel arbitration and then on appeal the Court found that the consumer had no meaningful choice as to whether to agree to the arbitration agreement. Next, the Court reviewed the terms of the arbitration clause, finding a prohibition of the awarding of statutory damages. The Court concluded that terms such as these were oppressive and one-sided and that the waiver of statutorily provided remedies by a weaker party was contrary to public policy.

    After finding two additional provisions in the arbitration clause unenforceable, the Court next examined whether these clauses could be severed from the arbitration agreement. The Court stated that although there are policies favoring arbitration, in some cases the clause cannot be saved because it will not give effect to the intent of the parties. Therefore, the Court held that because of the number of unconscionable and unenforceable terms in the arbitration agreement, that the agreement should completely be stricken from the contract and the ruling of the trial court should be affirmed.     

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Full post as published by The South Carolina Construction Law Blog on June 30, 2008 (boomark / email).