Patricia Damico and Lenna Lucas v. Lennar Carolinas, LLC, Spring Grove Plantation Development, Inc ( 2022 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
Patricia Damico and Lenna Lucas, Individually and on
behalf of all others similarly situated, Joshua and
Brettany Buetow, Edward and Sylvia Dengg, Jonathan
and Theresa Douglass, Anthony and Stacey Ray, Danny
and Ellen Davis Morrow, Czara and Chad England,
Bryan and Cynthia Camara, and Matthew Collins,
Respondents,
v.
Lennar Carolinas, LLC, Spring Grove Plantation
Development, Inc., Manale Landscaping, LLC, Super
Concrete of SC, Inc., Southern Green, Inc., TJB
Trucking/Leasing, LLC, Paragon Site Constructors, Inc.,
Civil Site Environmental and Rick Bryant, Individually,
Defendants,
of which Spring Grove Plantation Development, Inc.,
Manale Landscaping, LLC, Super Concrete of SC, Inc.,
Southern Green, Inc., TJB Trucking/Leasing, LLC, and
Civil Site Environmental are Respondents.
and
Lennar Carolinas, LLC, Appellant,
v.
The Earthworks Group, Inc., Volkmar Consulting
Services, LLC, Geometrics Consulting, LLC, Land/Site
Services, Inc., Myers Landscaping, Inc., A.C. & A.
Concrete, Inc., Knight's Concrete Products, Inc., Knight's
Redi-Mix, Inc., Coastal Concrete Southeast, LLC,
Coastal Concrete Southeast II, LLC, Guaranteed
Framing, LLC, Ozzy Construction, LLC, Construction
Applicators Charleston, LLC, LA New Enterprises, LLC,
Decor Corporation, DVS, Inc., Raul Martinez Masonry,
LLC, Alpha Omega Construction Group, Inc., South
Carolina Exteriors, LLC, Builders Firstsource-Southeast
Group, LLC, and Low Country Renovations and Siding,
LLP, Third-Party Defendants,
of which Volkmar Consulting Services, LLC, Land/Site
Services, Inc., Myers Landscaping, Inc., A.C. & A.
Concrete, Inc., Knight's Concrete Products, Inc., Knight's
Redi-Mix, Inc., Coastal Concrete Southeast, LLC,
Coastal Concrete Southeast II, LLC, Guaranteed
Framing, LLC, Ozzy Construction, LLC, Construction
Applicators Charleston, LLC, LA New Enterprises, LLC,
Decor Corporation, DVS, Inc., Raul Martinez Masonry,
LLC, Alpha Omega Construction Group, Inc., South
Carolina Exteriors, LLC, Builders Firstsource-Southeast
Group, LLC, are also Respondents.
and
Decor Corporation, Fourth Party Plaintiff,
v.
Baranov Flooring, LLC, DJ Construction Services, LLC,
Creative Wood Floors, LLC, Geraldo Cunha, Ebenezer
Flooring, LLC, Emmanuel Flooring and Siding, LLC,
Eusi Flooring and Covering, LLC, Nicolas Flores,
Alexander Martinez, Isidru Mejia, Juan Perez, N&B
Construction, LLC, Jose Dias Rodrigues, Livia Sousa,
Jose Paz Castro Hernandez, Divinio Aperecido
Corgosinho, Ricardo Chiche, CEBS Construction,
Bayshore Siding and Flooring, Sebastio Luiz de Araujo,
and John Does 1-4, Fourth-Party Defendants.
of whom Patricia Damico, Joshua and Brettany Beutow,
Bryan and Cynthia Camara, Matthew Collins, Jonathan
and Teresa Douglas, Czarra and Chad England, Lena
Lucas, and Danny and Ellen Davis Morrow are the
Petitioners.
Appellate Case No. 2020-001048
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
Appeal from Berkeley County
J.C. Nicholson Jr., Circuit Court Judge
Opinion No. 28114
Heard February 1, 2022 – Filed September 14, 2022
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED
Jesse Sanchez, of The Law Office of Jesse Sanchez, John
Calvin Hayes IV, of Hayes Law Firm, LLC, and
Catherine Dunn Meehan, of The Steinberg Law Firm,
LLP, all of Charleston; and Michael J. Jordan, of The
Steinberg Law Firm, LLP, of Goose Creek, all for
Petitioners.
James Lynn Werner, Jenna Brooke Kiziah McGee, and
Katon Edwards Dawson Jr., all of Parker Poe Adams &
Bernstein LLP, of Columbia, for Respondent Lennar
Carolinas, LLC; Robert Trippett Boineau, Heath
McAlvin Stewart III, and John Adam Ribock, all of
McAngus, Goudelock & Courie, LLC, of Columbia, for
Respondent Spring Grove Plantation Development, Inc.;
Carmen Ganjehsani, James H. Elliott Jr., and Francis
Heyward Grimball, all of Richardson, Plowden, &
Robinson, of Columbia, for Respondents Manale
Landscaping, LLC and Decor Corporation; Samia Hanafi
Nettles, of Richardson Plowden & Robinson, PA, of
Charleston, for Respondent Decor Corporation; Theodore
L. Manos, of Robertson Hollingsworth Manos & Rahn,
LLC for Respondent Super Concrete of SC; David
Cooper Cleveland and Trey Matthew Nicolette, both of
Clawson and Staubes, LLC, of Charleston, for
Respondent Myers Landscaping, Inc.; Rogers Edward
Harrell III, of Murphy & Grantland, PA, of Columbia, for
Respondents Knight's Concrete Products, Inc. and
Knight's Redi-Mix, Inc.; Steven L. Smith and Zachary
James Closser, both of Smith Closser, of Charleston, and
Samuel Melvil Wheeler, of Whitfield-Cargile Law,
PLLC, of Brevard, NC, all for Respondent Knight's
Concrete Products, Inc.; Brent M. Boyd and Timothy J.
Newton, both of Murphy & Grantland, PA, of Columbia,
for Respondents Coastal Concrete Southeast, LLC and
Coastal Concrete Southeast II, LLC; Alan Ross Belcher
Jr. and Elizabeth Wieters, both of Hall Booth Smith, PC,
of Mount Pleasant, and Christine Companion Varnado, of
Siebels Law Firm, of Charleston, all for Respondent
Guaranteed Framing, LLC; Erin DuBose Dean, of
Tupper, Grimsley, Dean & Canaday, PA, of Beaufort, for
Respondents LA New Enterprises Construction, Inc. and
Raul Martinez Masonry; Stephen Lynwood Brown and
Catherine Holland Chase, both of Clement Rivers, LLP,
of Charleston, and Preston Bruce Dawkins Jr., of Aiken
Bridges Elliott Tyler & Saleeby, PA, of Florence, all for
Respondent Alpha Omega Construction Group, Inc.; and
Jenny Costa Honeycutt, of Best Honeycutt, PA, of
Charleston, for Respondent South Carolina Exteriors,
LLC; Clarke W. DuBose, of Haynsworth Sinkler Boyd,
PA, of Columbia, for Respondent Southern Green, Inc.;
Stephen P. Hughes, of Howell Gibson & Hughes, PA, of
Beaufort, for Respondent Builders Firstsource-Southeast
Group, LLC; Ronald G. Tate Jr., of Gallivan, White &
Boyd, PA, and Robert Batten Farrar, of Rogers
Townsend, LLC, both of Greenville, for Respondent
Volkmar Consulting Services, LLC; Sidney Markey
Stubbs, of Baker Ravenel & Bender, LLP, of Columbia,
for Respondent DVS, Inc.; David Shuler Black, of
Howell Gibson & Hughes, PA, of Beaufort, for
Respondent TJB Trucking/Leasing, LLC; Shanna
Milcetich Stephens and Wade Coleman Lawrimore, both
of Anderson Reynolds & Stephens, LLC, of Charleston,
for Respondent A.C.&A. Concrete, Inc.; John Elliott
Rogers II, of Ward Law Firm, PA, of Spartanburg, for
Respondent Land/Site Services, Inc.; David Starr Cobb,
of Turner Padget Graham & Laney, PA, of Charleston,
for Respondent Construction Applicators Charleston,
LLC; Kathy Aboe Carlsten, of Copeland, Stair, Valz &
Lovell, LLP, and N. Keith Emge Jr., of Resnick & Louis,
PC, both of Charleston, for Respondent Civil Site
Environmental, Inc.; Scott Harris Winograd, Jeffrey A.
Ross, and Philip Paul Cristaldi III, all of Ross &
Cristaldi, LLC, of Mount Pleasant, for Respondent Ozzy
Construction, LLC.
JUSTICE KITTREDGE: This case arises out of a construction defect suit
brought by a number of homeowners (Petitioners) against their homebuilder and
general contractor, Lennar Carolinas, LLC (Lennar). Lennar moved to compel
arbitration, citing the arbitration provisions in a series of contracts signed by
Petitioners at the time they purchased their homes. As we will explain, those
contracts were contracts of adhesion. Petitioners pointed to purportedly
unconscionable provisions in the contracts generally and in the arbitration
provision specifically. Citing a number of oppressive terms in the contracts, and
without delineating between the contracts generally and the arbitration provision
specifically, the circuit court denied Lennar's motion to compel, finding the
contracts were grossly one-sided and unconscionable and, thus, the arbitration
provisions contained within those contracts were unenforceable. The court of
appeals reversed, explaining that the United States Supreme Court's holding in
Prima Paint Corp. v. Flood & Conklin Manufacturing Co. forbids consideration of
unconscionable terms outside of an arbitration provision (the Prima Paint
doctrine). 1 Damico v. Lennar Carolinas, L.L.C., 430 S.C. 188, 844 S.E.2d 66 (Ct.
1
See generally Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
403–06 (1967) (explaining that under the Federal Arbitration Act, courts may
"consider only issues relating to the making and performance of the agreement to
arbitrate," rather than those affecting the contract as a whole); S.C. Pub. Serv. Auth.
v. Great W. Coal (Ky.), Inc., 312 S.C. 559, 562–63, 437 S.E.2d 22, 24 (1993)
(holding Prima Paint applied not only to claims of fraud in the inducement of an
arbitration agreement, but to all contract defenses, including unconscionability, and
App. 2020). The court of appeals found the circuit court's analysis ran afoul of the
Prima Paint doctrine as it relied on the oppressive nature of terms outside of the
arbitration provisions.
While we agree with the court of appeals that the circuit court violated the Prima
Paint doctrine, we nonetheless agree with Petitioners and find the arbitration
provisions—standing alone—contain a number of oppressive and one-sided terms,
thereby rendering the provisions unconscionable and unenforceable under South
Carolina law. We further decline to sever the unconscionable terms from the
remainder of the arbitration provisions for two reasons. First, doing so would
require us to blue-pencil the agreement regarding a material term of the contract, a
result strongly disfavored in contract disputes. Second, as a matter of policy, we
find severing terms from an unconscionable contract of adhesion (in this case, an
arbitration provision) discourages fair, arms-length transactions. Rather, were we
to honor the severability clause in contracts such as these, it would encourage
sophisticated parties to intentionally insert unconscionable terms—that often go
unchallenged—throughout their contracts, believing the courts would step in and
rescue the party from its gross overreach. This is not to say severability clauses in
general should not be honored, because of course we are constrained to enforce a
contract in accordance with the parties' intent. Rather, we merely recognize that
where a contract would remain one-sided and be fragmented after severance, the
better policy is to decline the invitation for judicial severance. We therefore affirm
in part and reverse in part the court of appeals' decision and reinstate the circuit
court's denial of Lennar's motion to compel.
I.
The Abbey is a subdivision in the Spring Grove Plantation neighborhood located in
Berkeley County and consists of sixty-nine single-family homes constructed
between 2010 and 2015. The lots in the Abbey were originally owned and
developed by Spring Grove Plantation Development, Inc. (Spring Grove), which
graded the area and constructed the storm drainage system and roads. Spring
Grove in turn sold the partially-developed subdivision to Lennar, which completed
construction with the help of a number of subcontractors and sold all sixty-nine
homes.
stating that "a party cannot avoid arbitration through rescission of the entire
contract when there is no independent challenge to the arbitration clause").
In the course of development, Petitioners contracted with Lennar to build new
homes to their specifications in The Abbey. 2 As part of those transactions, Lennar
and Petitioners executed individual form contracts (the purchase and sale
agreement) containing an arbitration provision. Section 16 of the purchase and
sale agreement, titled "Mediation/Arbitration of Disputes," contains ten, numbered
paragraphs setting forth the arbitration agreement. In relevant part, paragraph 1
states:
The parties to this [purchase and sale a]greement specifically agree
that this transaction involves interstate commerce and that any
Dispute . . . shall first be submitted to . . . binding arbitration as
provided by the Federal Arbitration Act . . . . "Disputes" (whether
contract, warranty, tort, statutory or otherwise)[] shall include, but are
not limited to, any and all controversies, disputes or claims (1) arising
under, or related to, this [purchase and sale a]greement, the Property,
the Community or any dealings between Buyer and [Lennar]; (2)
arising by virtue of any . . . warranties alleged to have been made by
[Lennar] or [Lennar's] representatives; and (3) relating to personal
injury or property damage alleged to have been sustained by Buyer,
Buyer's children or other occupants of the Property, or in the
Community. Buyer has executed this [purchase and sale a]greement
on behalf of his or her children and other occupants of the Property
with the intent that all such parties be bound hereby.
Paragraph 4 further provides "that [Lennar] may, at its sole election, include
[Lennar's] contractors, subcontractors and suppliers, as well as any warranty
company and insurer as parties in the mediation and arbitration" and "that the
mediation and arbitration will be limited to the parties specified herein." Finally,
paragraph 5 states, "Buyer and [Lennar] further agree that no finding or stipulation
of fact, no conclusion of law, and no arbitration award in any arbitration hereunder
shall be given preclusive or collateral estoppel effect in any other arbitration,
judicial, or similar proceeding unless there is mutuality of parties."
After closing on their new homes, Petitioners became aware of damage to their
properties, which they attributed to Spring Grove, Lennar, and the subcontractors
2
We note Petitioner Lenna Lucas bought a pre-owned home built by Lennar in the
Abbey, so there is no direct contract between Petitioner Lucas and Lennar.
(collectively, Respondents). As a result, they filed a construction defect suit
against Respondents for, among other things, negligence, breach of contract, and
breach of various warranties.
Subsequently, Lennar moved to compel arbitration under either the Federal
Arbitration Act (FAA) 3 or the South Carolina Uniform Arbitration Act (SCUAA). 4
As is relevant to this appeal, Lennar argued Petitioners were required to arbitrate
under two different contracts: (1) the purchase and sale agreement; and (2) a
limited home warranty agreement (the limited warranty booklet). The arbitration
provisions within both contracts are virtually identical, so for ease of reference, we
will refer only to the terms in the purchase and sale agreement unless otherwise
noted. Petitioners opposed Lennar's motion to compel arbitration, claiming, among
other things, that the arbitration agreement was unconscionable.
Ultimately, the circuit court denied Lennar's motion to compel. Initially, the circuit
court found the "arbitration agreement" consisted of the entirety of the purchase
and sale agreement and the limited warranty booklet, explaining the extensive
cross-references between the two contracts combined them into a single agreement
akin to that found in Smith v. D.R. Horton, Inc., 417 S.C. 42, 790 S.E.2d 1 (2016)
(holding an arbitration agreement was not merely a standalone provision but was
instead embedded in multiple contract terms, including ones dealing with a limited
home warranty). Likewise, the circuit court held the contracts were
unconscionable, citing a number of oppressive, one-sided provisions. The court
declined to sever the unconscionable provisions because the oppressive terms
pervaded the entirety of the contracts, "thereby rendering 'severability' impractical,
if not impossible."5
3
9 U.S.C. §§ 1–16 (2021).
4
S.C. Code Ann. §§ 15-48-10 to -240 (2005).
5
The circuit court additionally held arbitration could not be compelled under
federal or state law. Specifically, the court determined the contracts involved
intrastate commerce, rather than interstate commerce, and therefore the FAA did
not apply. Further, the circuit court determined the arbitration agreement did not
comply with the SCUAA, specifically, section 15-48-10(a). See S.C. Code Ann.
§ 15-48-10(a) ("Notice that a contract is subject to arbitration pursuant to [the
SCUAA] shall be typed in underlined capital letters . . . on the first page of the
contract and unless such notice is displayed thereon the contract shall not be
Lennar appealed, and the court of appeals reversed. In relevant part, the court of
appeals found the arbitration agreement between Petitioners and Lennar consisted
only of Section 16 of the purchase and sale agreement. Relying on the Prima
Paint doctrine, the court of appeals held the circuit court wrongly considered terms
outside of the actual arbitration agreement. In particular, the court of appeals
distinguished the "intertwined" arbitration agreement in D.R. Horton from the
"distinct, separate" arbitration agreement in the purchase and sale agreement, and
found the circuit court impermissibly considered the terms found in the limited
warranty booklet. However, the court of appeals ended its analysis upon
concluding that the arbitration agreement was composed entirely of Section 16 of
the purchase and sale agreement.
While we agree with the court of appeals in that regard, we find it necessary to
continue the analysis to determine whether any terms within Section 16 of the
purchase and sale agreement were unconscionable in and of themselves. We
therefore granted Petitioners' petition for a writ of certiorari.
II.
As an initial matter, Petitioners argue the contracts at issue do not involve
interstate commerce, and therefore Lennar cannot compel Petitioners to arbitrate
under federal law, namely, the FAA. We disagree. The transactions here
manifestly involve interstate commerce, as they involved the construction of new
homes built to Petitioners' specifications rather than the purchase of pre-existing
homes. See, e.g., Bradley v. Brentwood Homes, Inc., 398 S.C. 447, 458 n.8, 730
S.E.2d 312, 318 n.8 (2012) ("[O]ur appellate courts have consistently recognized
that contracts for construction are governed by the FAA."); Episcopal Hous. Corp.
v. Fed. Ins. Co., 269 S.C. 631, 640, 239 S.E.2d 647, 652 (1977) (explaining that
contracts requiring the construction of a new building implicate interstate
commerce because it would be "virtually impossible" to construct the building
"with materials, equipment[,] and supplies all produced and manufactured solely
within the State of South Carolina"). Because federal law preempts state law in
this instance, we need not decide whether Lennar could also compel arbitration
under the SCUAA.
subject to arbitration [pursuant to the SCUAA].").
III.
Petitioners present two challenges to the court of appeals' opinion. First,
Petitioners defend the circuit court's reliance on D.R. Horton, asserting the court of
appeals erred in limiting the scope of the arbitration agreement to Section 16 of the
purchase and sale agreement alone. Specifically, Petitioners claim the purchase
and sale agreement and the limited warranty booklet expressly incorporate one
another by reference and extensively cross-reference one another such that one
cannot be read without the other. Petitioners therefore contend the two contracts
should be read as one large arbitration agreement rather than two separate
contracts. We agree with the court of appeals and reject Petitioners' first argument.
Pursuant to the Prima Paint doctrine, the FAA requires courts to separate the
validity of an arbitration clause from the validity of the contract in which it is
embedded. Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 540, 542 S.E.2d 360,
364 (2001) (citing Prima Paint, 388 U.S. at 395). The validity of the arbitration
clause is a matter for the courts, whereas the validity of the contract as a whole is a
matter for the arbitrator. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
445–46 (2006) ("[U]nless the challenge is to the arbitration clause itself, the issue
of the contract's validity is considered by the arbitrator in the first instance.").
As a result, as we stated in D.R. Horton, "in conducting an unconscionability
inquiry, courts may only consider the provisions of the arbitration agreement itself,
and not those of the whole contract." 417 S.C. at 48, 790 S.E.2d at 4. Necessarily,
then, the Court must first define the scope of the arbitration agreement before
considering whether that agreement is unconscionable. Id. at 48 n.4, 790 S.E.2d at
3 n.4 (explaining the scope of the arbitration agreement must first be determined
"because it controls which portions of the Agreement we may properly consider in
conducting our unconscionability analysis").
In D.R. Horton, one of the central issues involved defining the scope of the
arbitration agreement. Id. at 48, 790 S.E.2d at 4. The plaintiff-homeowners
claimed the arbitration agreement comprised the entire section of the contract titled
"Warranties and Dispute Resolution"; the defendant-homebuilder claimed the
arbitration agreement was contained solely within one subparagraph of that
section. Id. A majority of the Court ultimately agreed with the plaintiffs, finding
the arbitration agreement broadly encompassed the entirety of the "Warranties and
Dispute Resolution" section of the contract. Id. The Court explained the various
subparagraphs in the "Warranties and Dispute Resolution" section "contain[ed]
numerous cross-references to one another, intertwining the subparagraphs so as to
constitute a single provision." Id. Therefore, the Court concluded that the section
as a whole—including the subparagraphs relating to arbitration and those relating
to warranties—"must be read [together] to understand the scope of the warranties
and how different disputes are to be handled." Id.
Here, in contrast to D.R. Horton, there is a distinct section of the purchase and sale
agreement that sets forth the entirety of the arbitration agreement. As correctly
noted by the court of appeals, Section 16 of the agreement—titled
"Mediation/Arbitration of Disputes"—deals solely with the scope of arbitration and
the requisite formalities accompanying an arbitration proceeding, such as the
procedural rules and the number of arbitrators required to resolve the dispute.
Within Section 16, there is nothing that refers to the limited warranty booklet or
incorporates it by reference. Rather, Section 16 is a standalone arbitration
provision, dissimilar from that in D.R. Horton.
We therefore find the arbitration agreement is contained solely within Section 16
of the purchase and sale agreement.6
IV.
Petitioners' second argument posits that even assuming the court of appeals
correctly narrowed the scope of the arbitration agreement to Section 16 of the
purchase and sale agreement, it nonetheless erred in failing to analyze whether
Section 16 contained unconscionable terms that would render the agreement to
arbitrate unenforceable. Petitioners contend they lacked a meaningful choice with
6
As noted above, the limited warranty booklet contains an arbitration agreement
that uses identical language to Section 16 of the purchase and sale agreement.
Because the arbitration agreements in both contracts are standalone provisions, it is
legally irrelevant that the portions of the contracts outside of the arbitration
agreements extensively cross-reference one another and incorporate one another by
reference. See Buckeye Check Cashing, Inc., 546 U.S. at 445–46 ("Prima Paint
and Southland [Corp. v. Keating, 465 U.S. 1 (1984),] . . . establish[ed] three
propositions. First, as a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract. Second, unless the
challenge is to the arbitration clause itself, the issue of the contract's validity [as a
whole] is considered by the arbitrator in the first instance. Third, this arbitration
law applies in state as well as federal courts.").
respect to Section 16 and that certain terms in Section 16 are so oppressive that no
reasonable person would have agreed to them. We agree and now turn to the
general law of unconscionability.
Section 2 of the FAA provides that any arbitration provision contained within a
written contract involving interstate commerce must be enforced except for "upon
such grounds as exist at law or in equity for the revocation of any contract." 9
U.S.C. § 2. "Thus, generally applicable contract defenses, such as fraud, duress, or
unconscionability, may be applied to invalidate arbitration agreements without
contravening [the FAA]." Dr.'s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687
(1996).
At its core, unconscionability is defined "as the absence of meaningful choice on
the part of one party due to one-sided contract provisions, together with terms
which are so oppressive that no reasonable person would make them and no fair
and honest person would accept them." Fanning v. Fritz's Pontiac-Cadillac-Buick,
Inc., 322 S.C. 399, 403, 472 S.E.2d 242, 245 (1996); 17A Am. Jur. 2d Contracts §
272 (2016) (characterizing these two prongs as procedural and substantive
unconscionability, respectively); see also id. § 271 ("Generally, the doctrine of
unconscionability protects against unfair bargains and unfair bargaining
practices . . . ."). This general description of unconscionability applies to all
contract terms, not merely arbitration provisions. Cf. AT&T Mobility L.L.C. v.
Concepcion, 563 U.S. 333, 339 (2011) (noting that while arbitration agreements
may be invalidated by generally applicable contract defenses, including
unconscionability, they may not be invalidated by "defenses that apply only to
arbitration or derive their meaning from the fact that an agreement to arbitrate is at
issue"). Compare Fanning, 322 S.C. at 403, 472 S.E.2d at 245 (involving an
unconscionability analysis of a contract that did not contain an arbitration
provision), with Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 24–25, 644
S.E.2d 663, 668 (2007) (involving a similar unconscionability analysis for a
contract that contained an arbitration provision).
A determination of whether a contract is unconscionable depends upon all the facts
and circumstances of the case. S.C. Farm Bureau Mut. Ins. Co. v. Kennedy, 398
S.C. 604, 614, 730 S.E.2d 862, 867 (2012) (citation omitted). Indeed, we have
previously "emphasize[d] the importance of a case-by-case analysis in order to
address the unique circumstances inherent in the various types of consumer
transactions." Compare Simpson, 373 S.C. at 36, 644 S.E.2d at 674 (holding an
adhesion contract between an automobile dealership and a customer was
unconscionable), with Munoz, 343 S.C. at 541–42, 542 S.E.2d at 365 (declining to
find unconscionable an adhesion contract between a consumer and a lender). "In
analyzing claims of unconscionability in the context of arbitration agreements, the
[United States Court of Appeals for the] Fourth Circuit has instructed courts to
focus generally on whether the arbitration clause is geared towards achieving an
unbiased decision by a neutral decision-maker." Simpson, 373 S.C. at 25, 644
S.E.2d at 668–69 (citing Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938–40
(4th Cir. 1999)).
As explained further below, a take-it-or-leave-it contract of adhesion is not
necessarily unconscionable, even though it may indicate one party lacked a
meaningful choice. See generally 17A Am. Jur. 2d Contracts § 274; 17 C.J.S.
Contracts § 9 & n.9 (2020) (collecting cases). Rather, to constitute
unconscionability, the contract terms must be so oppressive that no reasonable
person would make them and no fair and honest person would accept them.
Fanning, 322 S.C. at 403, 472 S.E.2d at 245; see also 17A Am. Jur. 2d Contracts §
272 ("Although procedural and substantive unconscionability must both be present
in order for a court to exercise its discretion to refuse to enforce a contract or
clause under the doctrine of unconscionability, both need not be present to the
same degree; the agreement may be judged on a sliding scale: the more
substantively oppressive the contract term, the less evidence of procedural
unconscionability is required to come to the conclusion that the term is
unenforceable, and vice versa. In an exceptional case, however, a court may find
that a contract provision is so outrageous as to warrant holding it unenforceable on
the grounds of substantive unconscionability alone." (footnotes omitted)). In this
case, we do not hesitate in upholding the finding of unconscionability concerning
Section 16 of the purchase and sale agreement.
A.
As noted, under South Carolina law, the same principles of unconscionability
apply to contract terms and arbitration provisions alike. The touchstone of the
analysis begins with the presence or absence of meaningful choice. See Fanning,
322 S.C. at 403, 472 S.E.2d at 245; see also Carolina Care Plan, Inc. v. United
HealthCare Servs., Inc., 361 S.C. 544, 555, 606 S.E.2d 752, 758 (2004), 361 S.C.
at 555, 606 S.E.2d at 758 (explaining that a party seeking to prove an arbitration
agreement is unconscionable must allege he lacked a meaningful choice as to the
arbitration clause specifically, not merely that he lacked a meaningful choice as to
the contract as a whole). "Whether one party lacks a meaningful choice . . .
typically speaks to the fundamental fairness of the bargaining process." D.R.
Horton, 417 S.C. at 49, 790 S.E.2d at 4 (citation omitted). Thus, in determining
whether an absence of meaningful choice taints a contract term, such as an
arbitration provision, courts must consider, among all facts and circumstances, the
relative disparity in the parties' bargaining power, the parties' relative
sophistication, and whether the plaintiffs are a substantial business concern of the
defendant. Simpson, 373 S.C. at 25, 644 S.E.2d at 669; see generally 17A Am Jur.
2d Contracts § 272 (listing a number of factors that courts may considering in
conducting an unconscionability analysis); 17 C.J.S. Contracts § 10 (same).
Parties frequently claim they lack a meaningful choice when a contract of adhesion
is involved. D.R. Horton, 417 S.C. at 49, 790 S.E.2d at 4 (explaining adhesion
contracts are "standard form contracts offered on a take-it or leave-it basis with
terms that are not negotiable" (internal alteration marks omitted) (citation
omitted)). Because contracts of adhesion are non-negotiable, "[a]n offeree faced
with such a contract has two choices: complete adherence or outright rejection."
Lackey v. Green Tree Fin. Corp., 330 S.C. 388, 394, 498 S.E.2d 898, 901 (Ct.
App. 1998) (citation omitted).
Adhesion contracts are not per se unconscionable. Simpson, 373 S.C. at 27, 644
S.E.2d at 669; 17A Am. Jur. 2d Contracts § 274; 17 C.J.S. Contracts § 9 & n.9
(collecting cases). However, given that one party to an adhesion contract "has
virtually no voice in the formulation of the[] terms and language" used in the
contract, Lackey, 330 S.C. at 394, 498 S.E.2d at 901, courts tend to view adhesive
arbitration agreements with "considerable skepticism," as it remains doubtful "any
true agreement ever existed to submit disputes to arbitration," Simpson, 373 S.C. at
26, 644 S.E.2d at 669 (citations omitted). See also 17A Am. Jur. 2d Contracts §
274 (noting that "[c]ontracts of adhesion are enforceable unless they are
unconscionable," but "[n]evertheless, the fact that a contract is one of adhesion is a
strong indicator that [there was] an absence of meaningful choice"); 17 C.J.S.
Contracts § 9 ("A consumer transaction which is essentially a contract of adhesion
may be examined by the courts with special scrutiny to assure that it is not applied
in an unfair or unconscionable manner against the party who did not participate in
its drafting.").
The distinction between a contract of adhesion and unconscionability is worth
emphasizing: adhesive contracts are not unconscionable in and of themselves so
long as the terms are even-handed. Nevertheless, and regrettably, it is common
practice for the sophisticated drafter of contracts to routinely argue that a particular
contract is not one of adhesion when that is plainly untrue. Such a specious
argument does not advance the party's position and instead detracts from other
legitimate arguments the party may have. After all, unconscionability requires a
finding of a lack of meaningful choice coupled with unreasonably oppressive
terms. Thus, an adhesion contract with fair terms is certainly not unconscionable,
and the mere fact a contract is one of adhesion does not doom the contract-drafter's
case.
Here, we find it manifest that the purchase and sale agreement is a contract of
adhesion given by Lennar to all of the homebuyers in the Abbey, with only a few
blank spaces to fill in, including the buyer's name, the relevant property address,
and the purchase price. Other than those type of minor blank spaces, the terms of
the purchase and sale agreement—particularly those of any consequence to
Lennar—are non-negotiable, with some terms not even applying to specific
homebuyers. 7
Moreover, the sophistication of Petitioners, as individual homebuyers, pales in
comparison to Lennar. Given that Lennar has sold thousands of homes in the
Carolinas, whereas Petitioners will likely only purchase, at best, a handful of
homes in their entire lifetime, we find it fair to characterize Lennar as significantly
more sophisticated than Petitioners in home buying transactions. These factors
combine to highlight the significant disparity in the parties' bargaining power, with
Lennar enjoying a much stronger bargaining position than Petitioners. We
therefore find Petitioners lacked a meaningful choice in their ability to negotiate
the arbitration agreement. See Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C.
335, 343, 384 S.E.2d 730, 735–36 (1989) ("We have [] taken judicial cognizance
of the fact that a modern buyer of new residential housing is normally in an
unequal bargaining position as against the seller.").
B.
Within Section 16, Petitioners point to three provisions that are allegedly so one-
sided and unreasonable as to render the agreement unconscionable. Specifically,
Petitioners claim provisions in paragraphs 1, 4, and 5 require the Court to
invalidate the arbitration agreement. We agree. Because paragraph 4 of Section
16 of the purchase and sale agreement contains the most egregious term, we focus
our attention there.8
7
For example, Section 4 of the purchase and sale agreement lists two financing
options that are mutually exclusive with one another, with checkboxes to mark
which of the two options applies for any particular client.
8
We note Lennar made no attempt in its brief to defend paragraph 4 from
Petitioners' unconscionability challenge.
In particular, paragraph 4 states, "Seller may, at its sole election, include Seller's
contractors, subcontractors and suppliers, as well as any warranty company and
insurer as parties in the mediation and arbitration; and . . . the mediation and
arbitration will be limited to the parties specified herein." (Emphasis added.) It is
a fundamental principle of law that the plaintiff is the master of his own complaint
and is the sole decider of whom to sue for his injuries. Myles v. United States, 416
F.3d 551, 552 (7th Cir. 2005) ("[L]itigants are masters of their own complaints and
may choose who to sue—or not to sue."); 71 C.J.S. Pleading § 149 (Supp. 2021)
(citation omitted). Giving Lennar the "sole election" to include or exclude
subcontractors in the arbitration proceeding strips Petitioners of that right and
overturns a firmly entrenched legal principle. Cf. 17A Am. Jur. 2d Contracts §
272 ("Mutuality [] is a paramount consideration when assessing the substantive
unconscionability of a contract term.").
It is equally concerning that paragraph 4, in conjunction with paragraph 5, creates
the possibility of inconsistent factual findings that would preclude Petitioners from
recovery on a purely procedural (rather than a merit) basis—a legal defense to
which neither Lennar nor the other Respondents are entitled. In particular,
paragraph 5 states the parties agree no factual or legal finding made in arbitration
is binding in any other arbitral or judicial proceeding "unless there is mutuality of
parties." However, Lennar can ensure there is never a "mutuality of parties" by
exercising its "sole election" in paragraph 4 to choose the parties to the arbitration.
Suppose Lennar is unable or—of more concern—unwilling to compel the other
named defendants to arbitrate, instead forcing Petitioners to litigate with the
remaining defendants in circuit court. In that case, it is possible for the arbitration
defendants to blame the remaining circuit-court defendants for Petitioners'
damages, and vice versa. Were the respective fact finders to agree with the
defendants' arguments to that effect, Petitioners could lose in both forums merely
because the fact finder believes the absent defendants to be at fault, and, critically,
it is not Petitioners' choice that those defendants are absent. Compounding the
problem, paragraph 5 prevents any findings of fact or conclusions of law in the
arbitration to be binding in any subsequent arbitral or judicial proceeding instituted
by Petitioners to recover their damages fully. Thus, Petitioners could not even use
the fact that the arbitrator had found Lennar was not at fault when pursuing
liability against the remaining circuit-court defendants, or vice versa.
This creation of a procedural defense to liability for Lennar is wholly unreasonable
and oppressive to Petitioners. Moreover, the likelihood of inconsistent factual
findings due to paragraphs 4 and 5 of the arbitration agreement—and the resultant,
inherent unfairness to Petitioners—has become probable, rather than merely
theoretically possible. We say this because, as it stands now, Spring Grove and a
significant number of the subcontractors are not required to arbitrate with Lennar
and Petitioners because either (1) their contracts with Lennar do not contain an
arbitration provision; or (2) their contracts with Lennar (including the arbitration
agreements therein) were executed after Petitioners filed their lawsuit, i.e., after the
subcontractors had completed the work on Petitioners' homes and the Abbey in
general; or (3) they did not have a contract with Lennar at all—much less an
arbitration agreement.
As a result, we hold the arbitration agreement is unconscionable and unenforceable
as written.
Ordinarily, the question of unconscionability beyond the arbitration provision
would be determined in the arbitral forum. See Rent-A-Ctr., W., Inc. v. Jackson,
561 U.S. 63, 71–72 (2010). However, in agreeing with the circuit court concerning
the unconscionability of the arbitration provision, we note our additional
agreement with the circuit court that unconscionability pervades the various
agreements between the parties. An example of the oppressive, one-sided nature
of the parties' agreement includes a provision that Petitioners "expressly negotiated
and bargained for the waiver of the implied warranty of habitability [for] valuable
consideration . . . in the amount of $0." (Emphasis added.) Lennar also
specifically states the "[l]oss of use of all or a portion of your Home" is not
covered by its warranty to new homebuyers. 9 Likewise, another provision of the
adhesive contract states, "[T]his Agreement shall be construed as if both parties
jointly prepared it"—a blatant falsehood—"and no presumption against one party
or the other shall govern the interpretation or construction of any of the provisions
of this Agreement." Yet another provision asserts, "Buyer acknowledges that
justice will best be served if issues regarding this agreement are heard by a judge in
a court proceeding, and not a jury." (Original emphasis omitted, new emphasis
added.) This is not even to mention the fact that Lennar attempted to insert an
arbitration agreement in Petitioners' deeds, characterizing the arbitration agreement
as an "equitable servitude" that runs with the land in perpetuity.
9
Apparently, for Lennar to even consider repairing any defects in the homes they
construct and sell, the defects must be minor and become apparent very quickly
after the sale date. Otherwise, Lennar is off the hook for the defective housing,
and the innocent homebuyers are out of luck. After all, Lennar specifically
disclaims any responsibility to fix major problems to the home that result in the
homebuyers losing partial or complete use of their (not-inexpensive) home.
We find these and other terms of the contracts to be absurd, factually incorrect, and
grossly oppressive. While none of these terms factor into our unconscionability
analysis for the arbitration agreement, we recognize that although the circuit court
failed to honor the Prima Paint doctrine, it certainly hit the nail on the head in
characterizing the contracts as unquestionably unconscionable.
V.
Lennar does not argue to this Court that, should we find any provision of the
arbitration agreement unconscionable, we should sever that portion of the
agreement in accordance with the severability clause found in the arbitration
agreement.10 However, because Lennar made a severability argument to the circuit
court and court of appeals, we assume Lennar views it as an additional sustaining
ground and therefore address it in the interest of judicial economy. As we will
explain, we decline to sever the unconscionable provisions of the arbitration
agreement.
If a court finds a contract clause unconscionable, the court may refuse to enforce
the contract clause, or it may limit the application of the unconscionable clause so
as to avoid any possible unconscionable result. S.C. Code Ann. § 36-2-302(1)
(2003); Lackey, 330 S.C. at 397, 498 S.E.2d at 903; 17A Am. Jur. 2d Contracts §
313. However, severability is not always appropriate to remedy unconscionable
contractual provisions. Simpson, 373 S.C. at 34, 644 S.E.2d at 673; 17A Am Jur.
2d Contracts § 314. In particular, courts are reluctant to sever the unconscionable
provisions when illegality pervades the entire agreement "such that only a
disintegrated fragment would remain after hacking away the unenforceable parts."
Simpson, 373 S.C. at 34, 644 S.E.2d at 673 (citation omitted); see also 17A Am
Jur. 2d Contracts § 314. In those cases, judicial severing "look[s] more like
rewriting the contract than fulfilling the intent of the parties." Simpson, 373 S.C. at
34, 644 S.E.2d at 673 (citation omitted); see also 17A Am Jur. 2d Contracts § 313.
Thus, "[c]ourts have discretion [] to decide whether a contract is so infected with
unconscionability that it must be scrapped entirely, or to sever the offending terms
so the remainder may survive." Doe v. TCSC, L.L.C., 430 S.C. 602, 615, 846
S.E.2d 874, 880 (Ct. App. 2020); see also Simpson, 373 S.C. at 36, 644 S.E.2d at
674 (noting there is no specific set of factual circumstances indicating when
10
Paragraph 4 of Section 16 of the purchase and sale agreement states, "The
waiver or invalidity of any portion of this Section shall not affect the validity or
enforceability of the remaining portions of this Section."
complete invalidation of the contract is a better option than merely excising the
offending clauses). In exercising their discretion, courts should be guided by the
parties' intent. Doe, 430 S.C. at 615, 846 S.E.2d at 880; 17A Am. Jur. 2d
Contracts §§ 313–14; see also 17A Am. Jur. 2d Contracts § 273 ("To assess
whether unconscionable terms can be severed from a contract or whether the entire
contract should be invalidated, a court considers whether the illegality is central or
collateral to the purpose of the contract.").
A.
We first note the unconscionable portion of the agreement Lennar presumably
wishes us to sever from the remainder of paragraph 4 deals with the proper,
"agreed upon"11 parties to the arbitration proceeding. We decline to blue-pencil
that provision.
It goes without saying that the clause of a contract that names the persons or
entities that may properly be joined as parties to proceedings arising from any
dispute involving that contract is a material term of the agreement. Cf. Grant v.
Magnolia Manor-Greenwood, Inc., 383 S.C. 125, 131–32, 678 S.E.2d 435, 439
(2009) (discussing when a term is integral to a contract, as compared to an
"ancillary logistical concern," and explaining courts must look to the "essence" of
the arbitration agreement; "[w]here [a particular term] has implications that may
substantially affect the substantive outcome of the resolution, we believe that it is
neither 'logistical' nor 'ancillary.'" (emphasis added)). Were we to sever such a
clause from the arbitration agreement here, it would be the opposite of excising an
"ancillary logistical concern." Rather, we would be materially rewriting the
contract by controlling who will—or will not—participate in arbitration.
Blue-pencilling an agreement is, of course, within the Court's discretion. Here, we
decline to excise a material term of the arbitration agreement and enforce the
remaining, fragmented agreement. See Stevens & Wilkinson of S.C., Inc. v. City of
Columbia, 409 S.C. 568, 578, 762 S.E.2d 696, 701 (2014) ("A valid and
enforceable contract requires a meeting of the minds between the parties with
regard to all essential and material terms of the agreement." (citation omitted)); cf.
11
We say "agreed upon" in quotation marks to emphasize that this is an adhesion
contract, making it "considerably doubtful" the agreement truly encapsulates both
parties' intent. See Simpson, 373 S.C. at 26, 644 S.E.2d at 669 (citation omitted).
Nonetheless, because Lennar drafted the adhesion contract, we assume it does
accurately represent Lennar's intent.
id. at 579, 762 S.E.2d at 701 (noting even when parties manifest an intent to be
bound, an indefinite material term may invalidate the agreement (quoting 1 Corbin
on Contracts § 2.8 (Rev. ed. 1993))); Shotts v. OP Winter Haven, Inc., 86 So. 3d
456, 478 (Fla. 2011) ("Further, if the [unconscionable] provision were severed, the
trial court would be hard pressed to conclude with reasonable certainty that, with
the illegal provision gone, there still remains of the contract valid legal promises
on one side which are wholly supported by valid legal promises on the other—
particularly[] when those legal promises are viewed through the eyes of the
contracting parties." (internal quotation marks omitted) (internal citation omitted)).
Succinctly stated, once we sever the unconscionable terms in the arbitration
provision, there is essentially nothing left.
B.
There are two additional, important considerations in this case that bear on
severability. The first of these two considerations is that this arbitration
agreement—and, indeed, the purchase and sale agreement as a whole—is a
contract of adhesion. As mentioned above, adhesion contracts "are subject to
considerable skepticism upon review, due to the disparity in bargaining positions
of the parties." Simpson, 373 S.C. at 26, 644 S.E.2d at 669 (citation omitted); see
also 17A Am. Jur. 2d Contracts § 274; 17 C.J.S. Contracts § 9. In particular,
when a contract of adhesion is at issue, "there arises considerable doubt that any
true agreement ever existed to submit disputes to arbitration." Simpson, 373 S.C.
at 26, 644 S.E.2d at 669 (citation omitted). Similarly, given the adhesive nature of
the contract here, we find it "considerably doubtful" any true agreement ever
existed to sever any oppressive provisions from the arbitration agreement,
particularly given that the less sophisticated and less powerful party(s) (Petitioners)
had no hand in drafting or negotiating any of the language of the arbitration
agreement. See Doe, 430 S.C. at 615, 846 S.E.2d at 880 (explaining that when
exercising its discretion to sever portions of the agreement, a court must be guided
by the parties' intent).
The second additional consideration of which we take note is that this contract
involves a consumer transaction. See Simpson, 373 S.C. at 36, 644 S.E.2d at 674(placing emphasis on the need for a case-by-case analysis in cases involving
consumer transactions so as to address the unique circumstances inherent in those
types of contacts). More specifically, this contract involves the purchase of a new
home. South Carolina has a deeply-rooted and long-standing policy of protecting
new home buyers. Kennedy, 299 S.C. at 341–44, 384 S.E.2d at 734–36 (rejecting a
result in which "a builder who constructs defective housing escapes liability while
a group of innocent new home purchasers are denied relief because of the
imposition of traditional and technical legal distinctions"; and explaining that in
the past, when the Court is confronted with a new scenario "not properly disposed
of by our present set of rules," it "[o]nce more[] respond[s] by expanding our rules
to provide the innocent buyer with protection" (citing Lane v. Trenholm Building
Co., 267 S.C. 497, 229 S.E.2d 728 (1976))). As we stated over thirty years ago, it
is "intolerable to allow builders to place defective and inferior construction into the
stream of commerce." Id. at 344, 384 S.E.2d at 736 (citing Rogers v. Scyphers,
251 S.C. 128, 135–36, 161 S.E.2d 81, 84 (1968)). Thus, the fact that the
arbitration agreement contained within the purchase and sale agreement involves
the construction and sale of a new home is relevant to our analysis of this
consumer transaction.
Generally, courts will not enforce contracts that violate public policy. Carolina
Care Plan, Inc., 361 S.C. at 555, 606 S.E.2d at 758 (citation omitted).
A refusal to enforce a contract on the grounds of public policy is
distinguished from a finding of unconscionability; rather than
focusing on the relationship between the parties and the effect of the
agreement upon them, public policy analysis requires the court to
consider the impact of such arrangements upon society as a whole.
17A Am. Jur. 2d Contracts § 238 (Supp. 2021) (citation omitted). Public policy
may be expressed in constitutional or statutory authority or in judicial decisions.
White v. J.M. Brown Amusement Co., 360 S.C. 366, 371, 601 S.E.2d 342, 345
(2004); see also 17A Am. Jur. 2d Contracts § 238 (2016) (explaining courts may
consider, inter alia, the subject matter of the contract, the strength of the public
policy, and the likelihood that refusal to enforce the challenged term in the contract
will further public policy).
Given the pervasive presence of oppressive terms in the arbitration provision, we
find the severability clause here, in an unconscionable, adhesive home construction
contract, is unenforceable as a matter of public policy. We are specifically
concerned that honoring the severability clause here creates an incentive for
Lennar and other home builders to overreach, knowing that if the contract is found
unconscionable, a narrower version will be substituted and enforced against an
innocent, inexperienced homebuyer. Cf. Maria Kalogredis et al., Addressing
Increasing Uncertainty in the Law of Non-Competes, Ass'n Corp. Couns. 36 (Apr.
2018), https://www.hangley.com/wp-content/uploads/2018/04/ Addressing-
Increasing-Uncertainty-in-the-Law-of-Non-Competes.pdf (expressing a similar
concern in the context of non-compete agreements); Shotts, 86 So. 3d at 478(explaining it did not "make sense for a court to remake [the arbitration] agreement
to excise the offending provisions. Given the nature of the relationship between a
nursing home and its patient, the courts ought to expect nursing homes to proffer
form contracts that fully comply with [the law], not to revise them when they are
challenged to make them compliant. Otherwise, nursing homes have no incentive
to proffer a fair form agreement." (emphasis added) (citation omitted)); Richard P.
Rita Pers. Servs. Int'l, Inc. v. Kot, 191 S.E.2d 79, 81 (Ga. 1972) (declining to blue-
pencil an overly restrictive non-compete agreement because it would encourage
employers to "fashion truly ominous covenants with confidence that they will be
pared down and enforced when the facts of a particular case are not unreasonable.
This smacks of having one's employee's cake, and eating it too." (quoting Harlan
M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 683
(1960)))12; see also Howard Schultz & Assocs. of the Se., Inc. v. Broniec, 236
S.E.2d 265, 269 (Ga. 1977) ("It is these very requests which are the reason for
rejecting severability of employee covenants not to compete. Employers covenant
for more than is necessary, hope their employees will thereby be deterred from
competing, and rely on the courts to rewrite the agreements so as to make them
enforceable if their employees do compete. When courts adopt severability of
covenants not to compete, employee competition will be deterred even more than it
is at present by these overly broad covenants against competition.").
Moreover, we do not doubt that "for every [arbitration agreement] that finds its
way to court, there are thousands that exercise an in terrorem effect on
[homebuyers] who respect their contractual obligations." Kalogredis, supra, at 36
12
We note that prior to 2012, Georgia courts prohibited blue-penciling non-
compete agreements under the common law. However, in 2012, Georgia's
legislature enacted sections 13-8-53 and 13-8-54, permitting—but not requiring—
courts to blue-pencil such agreements. Ga. Code Ann. §§ 13-8-53(d) (2022) ("[A]
court may modify a covenant that is otherwise void and unenforceable . . . ."
(emphasis added)); id. § 13-8-54(b) (2022) ("[I]f a court finds that a contractually
specified restraint does not comply with [the law], then the court may modify the
restraint provision . . . ." (emphasis added)). Following the statutory enactments,
Georgia courts have remained reluctant to modify overly burdensome non-compete
agreements to make them enforceable, as "unreasonable restrictive covenants are
against Georgia public policy." Belt Power, L.L.C. v. Reed, 840 S.E.2d 765, 770–
71 (Ga. Ct. App. 2020) (finding significant that sections 13-8-53(d) and 13-8-54(b)
gave the court discretion whether to blue-pencil an agreement, and upholding the
trial court's refusal to blue-pencil the burdensome non-compete agreement in that
case).
(quoting Blake, supra, at 682). "Because most [homebuyers] simply comply with
their [arbitration agreements] rather than challenging them in court, the argument
goes, the law should provide a strong incentive for [home builders] not to
overreach." Id.
C.
Given that the subject matter of the contract involves new home construction, and
South Carolina has an extensive history of expanding its common law on contracts
so as to protect new homebuyers, we find honoring the severability clause here—
particularly because it goes to a material term of the arbitration agreement—would
violate public policy. Our holding is based primarily upon two factors. First, the
contract at issue is a contract of adhesion, in which it is "considerably doubtful"
both parties truly intended a court to sever an unconscionable provision and
enforce the remainder of the agreement. Second, with respect to the public policy
considerations inherent in this type of consumer transaction (homebuying), "the
likelihood that refusal to enforce the bargain or term will further [public] policy"
is, we hope, high. See 17A Am. Jur. 2d Contracts § 238.
VI.
In sum, we hold the court of appeals correctly limited the scope of the arbitration
agreement to Section 16 of the purchase and sale agreement, in accordance with
the Prima Paint doctrine. However, while the court of appeals declined to address
the matter, there are several unconscionable provisions within Section 16, the most
egregious of which strips Petitioners of their ability to name the parties against
whom they are asserting their claims in the arbitration proceeding. Because this is
a contract of adhesion, and because the transaction involves new home
construction, we decline to sever the unconscionable provisions for public policy
reasons. It is clear Lennar furnished a grossly one-sided contract and arbitration
provision, hoping a court would rescue the one-sided contract through a
severability clause. We refuse to reward such misconduct, particularly in a home
construction setting. We therefore affirm in part and reverse in part the decision of
the court of appeals and reinstate the circuit court's denial of Lennar's motion to
compel. The matter is remanded to the circuit court.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
BEATTY, C.J., HEARN, FEW, JJ., and Acting Justice Blake A. Hewitt,
concur.