Real estate law never bores me, but our cases may seem particularly mundane considering the Murdaugh prosecution that has gripped our state for more than a month. You may want to put this blog aside until the jury returns its verdict. I’ve seen so many photos on social media of groups of lawyers watching the case together that I am confident real estate is not top of mind!
Huskins v. Mungo Homes, LLC* is a South Carolina Court of Appeals case which was originally issued June 1, 2022, then withdrawn, substituted and refiled February 15, 2023.
The Huskins signed a Purchase Agreement with Mungo in June 2015 for a home in Westcott Ridge subdivision in Irmo. The document consisted of three pages. The first page contained a statutory notice of arbitration, the second page included a paragraph entitled “LIMITED WARRANTY”, and the third page included a paragraph entitled “ARBITRATION AND CLAIMS.”
In 2017, the Huskins filed an action against Mungo alleging the Purchase Agreement violated South Carolina law by disclaiming implied warranties without providing for a price reduction or other benefit to the purchaser for relinquishing those rights. The causes of action included: (1) breach of contract and the implied covenant of good faith and fair dealing; (2) unjust enrichment; (3) violation of the South Carolina Unfair Trade Practices Act, and (4) declaratory relief regarding the validity of the waiver and release of warranty rights and the validity of Mungo’s purported transfer of all remaining warranty obligations to a third party.
Mungo filed a motion to dismiss and compel arbitration. The Huskins’ responsive memorandum argued that the arbitration clause was unconscionable and unenforceable. They asserted that the limitation of warranties provision should be considered as a part of the agreement to arbitrate. The Circuit Court issued an order granting the motion to dismiss and compelling arbitration. In ruling the arbitration clause was not one-sided and unconscionable, the Circuit Court found that (1) the limited warranty provision must be read in isolation from the arbitration clause; and (2) terms in the arbitration clause pertaining to a 90-day time limit were not one-sided and oppressive because they did not waive any rights or remedies otherwise available by law.
The Court of Appeals initially held that the Circuit Court’s order was immediately appealable, stating that our state procedural rules, rather than the Federal Arbitration Act, govern appealability of arbitration orders. While arbitration orders are not typically immediately appealable under South Carolina law, this order had granted Mungo’s Rule 12(b)(6) motion to dismiss, which is an appealable order.
The Court next held that the arbitration clause must be considered separately from the limited warranty provision, citing cases to the effect that arbitration provisions are separable from the contracts in which they are imbedded. A prior D.R. Horton South Carolina Supreme Court case** considered the arbitration and warranty provisions together, in part because the title of the paragraph, “Warranties and Dispute Resolution” signaled that the provisions should be read as a whole. Since the Mungo paragraphs were separated, the Court of Appeals said they should be read separately. In addition, the two provisions did not contain cross references.
The Court next addressed the Huskins’ argument that the limitation of claims provision restricted the statutory limitations period from three years to 90 days and was therefore not severable from the arbitration clause. The Court agreed that the provision that limited the statute of limitations is one-sided and oppressive, but held that the arbitration clause is enforceable because the unconscionable provision is severable.
After concluding that the Huskins lacked a meaningful choice in entering the arbitration clause, the Court of Appeals held that the arbitration clause’s shortening of the statute of limitations violates South Carolina law and is therefore unconscionable and unenforceable.
The Circuit Court’s order was affirmed as modified.
Now …. back to the Murdaugh trial!
*South Carolina Court of Appeals Opinion 5916 (June 1, 2022, Withdrawn, Substituted and Refiled February 15, 2023.
**Smith v. D.R. Horton, Inc., 417 S.C. 42, 790 S.E.2d 1 (2016).