On December 11, 2024, the South Carolina Supreme Court sent a clear message to home developers/builders – an arbitration clause that also contains a provision that violates a statute and/or South Carolina public policy may render the entire arbitration agreement void.
The Court in Huskins v. Mungo Homes, LLC, analyzed the purchase/sale agreement between the homebuyers (Huskins) and homebuilder (Mungo Homes) for the purchase of a single-family residential home. As most such sales contracts do, the contract contained an arbitration agreement. However in this case, the arbitration clause included another clause that required the homebuyers to make any claims under the arbitration agreement within ninety (90) days of discovery of the claims. While such clauses that create a shorter trigger for claims are not uncommon nationally, this 90-day limitation was in direct conflict with South Carolina Code § 15-3-140, which forbids and renders void any contract clause which attempts to shorten the legal statute of limitations. It also violated the well-established South Carolina public policy of protecting homebuyers from overreaching contractual terms in adhesion (take it or leave it for the consumer) contracts with home developers/builders.
Pertinently, the Court found that no severance provision existed within the contract. This factor with the contract of adhesion analysis led to the Court determining that the entire arbitration agreement was void, not just the 90-day limitation clause.
Finally, the Court – without directly stating so – appeared to premise the justification for its harsh ruling as “punishment” of Mungo for these violations of South Carolina law and public policy.
Beyond the facts of this case, the Court has put home developers/builders on notice. If an arbitration agreement with homebuyers: (1) violates South Carolina law in some respect separate from the arbitration cause itself or (2) runs afoul of South Carolina public policy in some way, a South Carolina court may find that the portion of the contract that contains the arbitration term itself becomes unenforceable. For example, hypothetically, if a contract provision purported to waive a statutory claim that cannot be waived, the enforceability of the ability to invoke the arbitration agreement could be drawn into question.
Lessons learned: (1) Keep other terms in the agreement separate from arbitration clauses; (2) include a severance clause in the agreement; (3) take care not to include provisions in the agreement that directly violate South Carolina laws; and (4) given the recent slate of court opinions limiting homebuyer arbitration clauses in South Carolina, it may be prudent to start simplifying arbitration clauses in consumer contracts by concentrating mainly on traditional areas like scope of the clause and identification of a third party neutral. Complex consumer arbitration clauses are clearly viewed with suspicion and distain by South Carolina courts.
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