South Carolina’s Support of Arbitration Continues to Grow

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Previously, in order to have an enforceable arbitration agreement in South Carolina, the arbitration language had to appear on the pages of the contract in bold, UPPER CASE and underlined print. Now, arbitration agreements are presumed valid and a party resisting the remedy has the burden of proof otherwise.

In fact, as ease of doing business between states grows and the nation grows smaller, it is a challenge to find a contract that is not subject to arbitration, because of either a broad state arbitration act or the Federal Arbitration Act (FAA). The Court of Appeals recently reinforced its policy favoring arbitration in Mary Beth Marzulli v. Tenet South Carolina, Inc., et al  2018 WL 1531507 (March 28, 2018).

Briefly, in Marzulli, Plaintiff, an experienced physical therapist, relocated from Pennsylvania to work at Hilton Head Regional Health Center. A month or so after beginning work, she attended an orientation during which she signed an agreement that provided all claims and disputes related in any way to her employment or termination thereof were to be resolved by way of arbitration. A few years after signing this agreement, a patient made allegations of improper conduct against Plaintiff that resulted in a report to local law enforcement and Plaintiff was suspended. The claims were dismissed due to lack of evidence. Plaintiff refused to accept reinstatement of employment conditioned on execution of a performance plan based on record-keeping issues and sued Defendants for defamation arising from the report to law enforcement. The Hospital’s motion to enforce arbitration was denied and this appeal followed.

The court used Marzulli as an opportunity to remind practitioners of several critical considerations relative to applicability of the FAA. Axiomatic is the application of the FAA to any agreement involving interstate commerce, regardless of whether the parties contemplated an interstate transaction. Under the FAA, it is sufficient to establish, in the aggregate, the economic activity in question represents a general practice subject to federal control. Our supreme court has rejected the analysis of interstate commerce solely based on whether a contract on its face reflects a substantial relation to interstate commerce. Rather, the proper question is whether the economic activity at issue is a general practice subject to federal control. Our court has found healthcare, in general, is subject to federal control and therefore a matter of interstate commerce. 

Because the employment agreement at issue involved interstate commerce, the court turned to the lower court’s finding of unconscionability which requires a showing 1) one party lacked meaningful choice due to one-sided provisions of the contract and 2) a showing that the terms of the contract were grossly oppressive. 

Looking at the first prong of the unconscionsability test, the court recognized employees of a large corporation usually have less bargaining power, but that alone does not establish unconscionability. The court specifically found Plaintiff was not pressured or coerced into signing the agreement; nothing prohibited her from negotiating the terms. Additionally, while Plaintiff did not have independent counsel, the court found nothing prevented her from seeking counsel, or more time to consider the agreement. The court also rejected the lower court’s finding the arbitration clause was inconspicuous. While the clause was in the same size and font as the rest of the agreement, it consumed about half of the one page agreement. The court also found Plaintiff’s continued employment was sufficient consideration for the arbitration clause.

Turning to the second prong of the test, the court rejected the lower court’s finding the agreement was oppressive and one-sided. The agreement met the most important test; it required resolution by a neutral body acceptable to both parties. Further, the only civil remedy waived was a jury trial, and both parties waived that right. 

The final challenge to the lower court’s order was based upon its finding the defamation claim was not contemplated by the parties. While arbitration is only required where the parties have contractually agreed, the breadth of the FAA is so broad that a tort claim will be included in a broadly phrased arbitration clause. 

Marzulli demonstrates the continually expanding application of arbitration, particularly through the FAA, while providing a comprehensive review of elements and factors critical to the resolution of a challenge thereto.

Cheryl D. Shoun is a trial attorney and certified mediator whose experience includes construction law, insurance defense, personal injury defense, employment litigation and medical malpractice. As a frequent writer, she serves as editor for Nexsen Pruet's TIPS: Torts, Insurance and Products Blog.