BY TAYLOR AMBROSIUS
FEATURE
Introduction to Arbitration in South Carolina
Arbitration is a form of alternative dispute resolution (ADR) that allows parties to resolve disputes outside of the traditional court system. It involves a neutral third party, either an arbitrator or a panel, who renders a decision or award after hearing the parties' evidence and arguments. Arbitration is often lauded for its efficiency and confidentiality, making it a preferred method in many commercial and contractual disputes.
While there are multiple arbitration forums, this article focuses on the widely recognized American Arbitration Association (AAA). It is important to note that each forum operates under its own set of rules and procedures, which may differ significantly from those of the AAA.[1] Finally, although this article provides a general overview of arbitration and its procedures, it does not cover all potential issues that may arise, such as waiver of the right to arbitrate or discovery-related challenges.
Preliminary Issue - Determining Arbitrability
Before proceeding with arbitration, it is essential to first determine whether the dispute is arbitrable. Questions of arbitrability are generally considered gateway issues that must be resolved before reaching the merits of a dispute.[2]This involves determining (i) whether a valid arbitration agreement exists and (2) whether the dispute falls within the scope of the applicable arbitration agreement. Courts generally decide these issues.[3] However, this rule can be altered if the parties clearly and unmistakably agree to delegate such questions to the arbitrator.[4]
Courts have consistently held that arbitration is a matter of contract.[5]Thus, a party cannot be compelled to arbitrate unless there is a valid, properly formed, and enforceable arbitration agreement. However, under the Prima Paint doctrine,[6] courts must assess challenges to an arbitration provision separately from challenges to the validity of the contract as a whole.[7] For example, if a party challenges the enforceability of an arbitration agreement on the grounds of unconscionability, they must demonstrate that the arbitration clause itself is unconscionable.[8]
Additionally, the applicability of either the South Carolina Uniform Arbitration Act (SCUAA),[9] or the Federal Arbitration Act (FAA),[10] may further impact the enforceability of the arbitration agreement. Specifically, section 15-48-10(a) of the SCUAA contains a mandatory notice provision, which states in
relevant part, "Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract and unless such notice is displayed thereon the contract shall not be subject to arbitration.''[11] South Carolina courts have strictly construed the notice requirement of section 15-48-10 (a) and have found that no other variation is acceptable.[12]
Although the parties may agree on the applicable Act, the FAA preempts any state law that would invalidate an arbitration agreement, provided the transaction involves interstate commerce.[13] Unlike the SCUAA, the FAA does not require technical notice, allowing for broader applicability. Whether interstate commerce is implicated depends on the nature and scope of the contract's performance obligations.[14]Thus, even if the parties agree that the SCUAA governs the dispute, thereby invoking its strict notice requirements, the FAA may nonetheless preempt state law so that the arbitration provision is enforceable, but only if the transaction involves interstate commerce.
Lastly, in determining whether a dispute falls within the scope of an arbitration agreement, the South Carolina Supreme Court has held that broadly worded arbitration clauses are generally enforced when there is a significant relationship between the asserted claims and the contract containing the arbitration provision.[15] However, South Carolina courts have held that a tort is not arbitrable when it is outrageous and unforeseeable.[16]
Given these considerations and potential litigation regarding such matters, attorneys should carefully assess arbitrability early in the dispute. This involves analyzing the language of the arbitration clause, assessing the validity of notice if applicable, identifying any potential formation issues, and evaluating the scope of the agreement. Failing to address arbitrability can result in delays in resolving such threshold issues.
AAA Arbitration Tracks
After resolving any questions of arbitrability, the arbitration may proceed according to the applicable procedural framework. Under the relevant AAA rules, cases are assigned to different procedural tracks based on their complexity and monetary value. Examples of different tracks include, but are not limited to, standard tracks, expedited or fast-tracked procedures, and tracks designed for large, complex disputes.[17]
Procedural Variations by Track
Expedited arbitration cases are designed to streamline the process by limiting discovery, shortening timelines, and minimizing formalities, all of which help reduce costs and expedite resolution. These cases often have more efficient procedures and faster resolutions, making them ideal for disputes that are straightforward or involve smaller amounts in controversy.
In contrast, cases categorized under the large or complex track typically involve broader discovery, longer timelines, and more formal procedures, reflecting the higher stakes and intricate issues inherent in such disputes. These cases may require extensive preliminary hearing conferences, multiple hearings, and more detailed evidence submissions.
Additionally, in certain cases, particularly where the amount in dispute is relatively low or the parties agree, there is the option to have the arbitrator render a decision based solely on the documentary evidence submitted without the need for a formal evidentiary hearing.[18]
Overview of Arbitration Procedures
Initiating Arbitration
Many contracts include an arbitration clause that designates the governing forum and rules, such as those outlined in the AAA's rules for commercial arbitration, construction industry arbitration, consumer arbitration, and other specialized areas. Understanding and adhering to these clauses is essential to initiating and participating in arbitration successfully.
Once the appropriate rules are identified, arbitration generally begins with the submittal of a demand for arbitration through the AAA's WebFile. The AAA facilitates this process by providing specific forms for parties to complete.[19] The demand typically outlines the nature of the dispute, identifies the parties involved, specifies the amount in...
