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2004-UP-631 - Ridgeway v. Litchfield Company

THIS OPNION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON AS
PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals


Lawrence M. Ridgeway, Respondent,

v.

The Litchfield Company of South Carolina Limited Partnership and The Litchfield Company Inc., Defendants, Of whom The Litchfield Company of South Carolina Limited Partnership is the, Appellant.


Appeal From Georgetown County
 J. Michael Baxley, Circuit Court Judge


Unpublished Opinion No. 2004-UP-631
Heard October 12, 2004 – Filed December 15, 2004


AFFIRMED


Joseph C. Wilson, IV, of Charleston, for Appellant.

Saul  Gliserman, of Charleston, for Respondent.

HEARN, C.J.:  The Litchfield Company of South Carolina Limited Partnership (Litchfield) appeals the circuit court’s denial of its motion to compel arbitration.  We affirm.

FACTS

The relevant facts are not in dispute.  On September 18, 1999, Lawrence M. Ridgeway, as grantee, entered into a purchase agreement with Heritage-Litchfield, Inc., as grantor, to purchase condominium unit 20-101 in the Avian Forest development in Georgetown. [1]   The purchase agreement contained an arbitration clause, which provided as follows:

ARBITRATION  In the event that a dispute or claim shall arise with respect to any of the terms or provisions of this Master Deed, or a dispute between the Grantor or any contractors employed by the Grantor, and any one or more Unit Owners, such claims to include but not be limited to claims for negligent or improper construction, failure to meet specifications, and other claims related to structural improvements, all disputes or claims shall be resolved by Binding Arbitration pursuant to Title 15, Chapter 48 (Uniform Arbitration Act) of the Code of Laws of South Carolina.  All resulting awards and determinations made by the arbitrators pursuant to the provisions of this section shall be conclusively binding upon all parties hereto and judgment may be rendered thereon.

(Emphasis added.)  Litchfield was involved with the sale of the unit solely as the real estate broker for Heritage-Litchfield and marketing company for the Avian Forest development. 

Shortly after purchasing unit 20-101, Ridgeway discovered that the unit was infested with toxic mold.  Ridgeway asserted the mold rendered the unit uninhabitable.  Ridgeway further asserted that the development lacked several promised amenities and the grounds contained several abandoned or derelict buildings.  According to Ridgeway, the mold infestation and other deficiencies have rendered the unit “without meaningful market value.”

Ridgeway instituted an action against Litchfield alleging that he would not have purchased the Avian Forest unit but for the tortious conduct of Litchfield, which caused Ridgeway to believe that Litchfield, as opposed to Heritage-Litchfield, was the developer of the Avian Forest project.  Ridgeway asserted causes of action arising from the marketing and promotion of Avian Forest, including unfair trade practices, negligent misrepresentation, constructive fraud, fraud, promissory estoppel, and civil conspiracy.  Litchfield filed an answer and motion to compel arbitration based upon the arbitration clause in the purchase agreement entered into by Heritage-Litchfield and Ridgeway.  Litchfield concedes that it was neither a party nor a signatory to the purchase agreement or arbitration clause. [2]   The circuit court denied Litchfield’s motion to compel arbitration.  This appeal followed.

STANDARD OF REVIEW

 “Whether a claim is subject to arbitration is an issue for judicial determination, unless the parties have agreed otherwise.”  Vestry and Church Wardens of Holy Cross v. Orkin Exterminating Co., 356 S.C. 202, 207, 588 S.E.2d 136, 138 (Ct. App. 2003) (citation omitted).  In deciding whether the parties have agreed to submit a particular grievance to arbitration, the court should not rule on the merits of the underlying claims.  Zabinski v. Bright Acres Assocs., 346 S.C. 580, 596, 553 S.E.2d 110, 118 (2001).  “A motion to compel arbitration made pursuant to an arbitration clause in a written contract should only be denied where the clause is not susceptible to any interpretation which would cover the asserted dispute.”  Id.

 “Determinations of arbitrability are subject to de novo review.”  Vestry and Church Wardens of Holy Cross, 356 S.C. at 207, 588 S.E.2d at 138.  However, the factual findings of the trial court will be overruled only if there is no evidence reasonably supporting them.  Deloitte & Touche, LLP v. Unisys Corp., 358 S.C. 179, 182, 594 S.E.2d 523, 525 (Ct. App. 2004).

LAW/ANALYSIS

In the case before us, we are not asked to determine whether the arbitration clause would be valid and enforceable as between Ridgeway and Heritage-Litchfield because Heritage-Litchfield does not seek arbitration.  Instead, Litchfield, a non-signatory to the arbitration clause, seeks to compel arbitration against Ridgeway. 

Arbitration is contractual by nature.  See Zabinski v. Bright Acres Assocs., 346 S.C. 580, 596, 553 S.E.2d 110, 118 (2001); Tritech Elec., Inc. v. Frank M. Hall & Co., 343 S.C. 396, 399, 540 S.E.2d 864, 865 (Ct. App. 2000).  Therefore, a party cannot be required to submit to arbitration any dispute that he has not agreed to arbitrate.  See United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); Zabinski, 346 S.C. at 580, 553 S.E.2d at 118.  There is strong state and federal public policy favoring arbitration agreements; however, such agreements must not be so broadly construed as to encompass claims and parties that were not intended by the original contract.  See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985); Towles v. United Healthcare Corp., 338 S.C. 29, 37, 524 S.E.2d 839, 844 (Ct. App. 1999).  However, “arbitration rests on the agreement of the parties, and the range of issues that can be arbitrated is restricted by the terms of the agreement.”  Zabinksi, 346 S.C. at 596-597, 553 S.E.2d at 118.  “In determining whether an agreement to arbitrate exists, ‘the court should apply ordinary state-law principles that govern the formation of contracts.’”  Towles, 338 S.C. at 37, 524 S.E.2d at 844 (citation omitted). 

Litchfield argues the trial judge erred in refusing to compel arbitration because, despite its lack of contractual relationship with Ridgeway, it can compel arbitration: (1) as a “contractor” under the arbitration clause of the purchase agreement, and (2) as an agent of Heritage-Litchfield.  We disagree.       

I.                  Litchfield is a not “contractor” as intended by the arbitration clause.

The arbitration clause of the purchase agreement provides for arbitration of disputes between “any contractors employed by the Grantor, and any one or more Unit Owners, such claims to include but not be limited to claims for negligent or improper construction, failure to meet specifications, and other claims related to structural improvements.”  Litchfield asserts that the term “contractor,” according to Black’s Law Dictionary (4th ed. 1979), is “strictly applicable to any person who enters into a contract, but is commonly reserved to designate one who, for a fixed price, undertakes to procure the performance of works or services on a large scale. . . .” [3]    Litchfield contends that it is a contractor by definition and therefore entitled to compel Ridgeway to arbitrate its dispute.           

We agree with the trial court that the definition of contractor asserted by Litchfield is correct in the broadest sense of the term, but that it is not the definition intended by the parties in the arbitration clause.    “The construction of a clear and unambiguous contract is a question of law for the court.”  Hawkins v. Greenwood Dev. Corp.  328 S.C. 585, 592, 493 S.E.2d 875, 878 (Ct. App. 1997) (citation omitted).  “Whether a contract is ambiguous is to be determined from the entire contract and not from isolated portions of the contract.” Farr v. Duke Power Co.  265 S.C. 356, 362, 218 S.E.2d 431, 433 (1975) (citation omitted).  “Common sense and good faith are the leading touchstones of the inquiry.”  Id. at 362, 218 S.E.2d at 434.

It is clear, considering the purchase agreement as a whole, that the term “contractor” found in the arbitration clause was intended to include only those parties to a contract responsible for furnishing labor and materials for the construction of Ridgeway’s condominium unit.  The entire body of the purchase agreement concerned only the sale of an Avian Forest condominium unit, and the agreement stated that Heritage-Litchfield “shall cause the Property to be constructed substantially in accordance with the Plan and Specifications previously reviewed by the purchaser . . . .”  The arbitration clause lists the types of disputes between Ridgeway and contractors to include “but not be limited to claims for negligent or improper construction, failure to meet specifications, and other claims related to structural improvements . . . .”  The purchase agreement did not contemplate any other type of contractor besides those responsible for furnishing labor and materials for construction.  Therefore, Litchfield cannot enforce the arbitration clause as a contractor because it did not furnish labor or materials for construction. 

II.               Litchfield cannot compel arbitration solely as an agent of Heritage-Litchfield.

Litchfield argues that under the principles of agency, a non-signatory may invoke an arbitration clause as an agent of the signatory. South Carolina courts have yet to address the issue of whether a non-signatory can invoke an arbitration clause solely as an agent of the signatory. 

Litchfield cites South Carolina Public Service Authority v. Great Western Coal, Inc., 312 S.C. 559, 437 S.E.2d 22 (1993) in support of the proposition that South Carolina allows non-signatories to an arbitration agreement to compel arbitration against a signatory.  In Great Western Coal, the South Carolina Public Service Authority contracted with Great Western Coal, including an agreement to arbitrate.  The Public Service Authority initiated an action against Great Western Coal and its president, Clyde E. Goings, in his individual capacity.  The court held Goings was entitled to demand arbitration of the Public Service Authority’s claims even though he did not sign the arbitration clause.  Great Western Coal relies on the Sixth Circuit Court of Appeals in Arnold v. Arnold Corp., 920 F.2d 1269 (6th Cir. 1990) for this proposition, stating:   “[A] party should not be allowed to avoid an arbitration agreement by naming nonsignatory parties in his complaint, or signatory parties in their individual capacity because this would nullify the rule requiring arbitration.” Id. at 563, 437 S.E.2d at 24-25 (emphasis in original). Thus, Great Western Coal permits only non-signatories who are alter egos of a signatory to compel arbitration.  In this case, Litchfield cannot compel arbitration because it is not an alter ego of the signatory, Heritage-Litchfield, Inc. 

Moreover, the other jurisdictions that allow a non-signatory to compel arbitration under the agency theory have done so only in instances where the action against the agent is within the scope of the arbitration agreement as contemplated by the signing parties.  See, e.g., Long v. Silver, 248 F.3d 309, 320-21 (4th Cir. 2001) (holding non-signatory could compel arbitration because the claims against the non-signatory parent corporation fell within the scope of the arbitration clause signed by the employee); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 758 (11th Cir. 1993) (holding that because claims against the non-signatory were “intimately founded in and intertwined with” a contract containing an arbitration clause, signatory was estopped from refusing to arbitrate those claims); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988) (holding that “when allegations against a parent company and its subsidiary are based on the same facts and are inherently inseparable, a court may refer claims against the parent to arbitration even though the parent is not formally a party to the arbitration agreement”); Norcom Elecs. Corp. v. CIM USA Inc., 104 F.Supp.2d 198, 203 (S.D.N.Y. 2000) (quoting Smith/Enron Cogeneration Ltd. P’ship. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 97-98 (2d Cir. 1999)) (“[T]he U.S. Court of Appeals for the Second Circuit and other circuits ‘have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.’”); First American Title Ins. Corp. v. Silvernell,  744 So.2d 883, 887-88 (Ala. 1999) (holding that non-signatory real estate agent had no right to compel arbitration of purchasers’ claim of conspiracy by agents because the arbitration clause defined arbitrable matters as controversies between the insurer and the insured purchaser, and the insurer was not part of the conspiracy).

In this case, the arbitration clause applies to disputes between Ridgeway and contractors responsible for furnishing labor and materials for construction.  Thus, Ridgeway’s claims for unfair trade practices, negligent misrepresentation, constructive fraud, fraud, promissory estoppel, and civil conspiracy against Litchfield would not fall within the scope of the arbitration clause.  Accordingly, even if we were to apply an agency theory to allow a non-signatory to enforce an arbitration clause, Litchfield would not be permitted to compel arbitration because Ridgeway’s causes of action do not fall within the scope of the arbitration clause. The order of the circuit court refusing to compel arbitration is therefore

AFFIRMED.

HUFF and KITTREDGE, JJ., concur.


[1] Heritage-Litchfield has declared bankruptcy.  There is on-going separate litigation between Ridgeway and the Heritage-Litchfield insurers.

[2] Subsequent to oral argument, the court received correspondence from counsel for Ridgeway stating for the first time that an agent of Litchfield was a signatory to the purchase agreement and therefore the arbitration clause.  Contrarily, both parties asserted the exact opposite in front of the trial judge and in their briefs on appeal–that Litchfield was a non-signatory to the purchase agreement.  Despite the revelations of counsel for Ridgeway following oral argument, we are bound by the record on appeal.  Rule 210(a), SCACR.  Because the record on appeal conclusively determines that Litchfield was a non-signatory to the purchase agreement and arbitration clause for purposes of our review, we must treat Litchfield as such. 

[3] We note that this definition has been amended to read “1. A party to a contract. 2. More specif., one who contracts to do work or provide supplies for another.”  Black’s Law Dictionary (8th ed. 2004).