Gregory W. Smith and Stephanie Smith, Respondents,
D.R. Horton, Inc., Tom's Vinyl Siding, LLC, Lutzen Construction, Inc., Boozer Lumber Company, All American Roofing, Inc., Myers Landscaping, Inc., Defendants, of whom D.R. Horton, Inc. is the Petitioner. Appellate Case No. 2013-001345
March 3, 2015
From Dorchester County Edgar W. Dickson, Circuit Court Judge
OF CERTIORARI TO THE COURT OF APPEALS
Matthew Kinard Johnson and W. Kyle Dillard, both of Ogletree
Deakins Nash Smoak & Stewart, PC, of Greenville, for
Phillip Ward Segui, Jr., of Segui Law Firm, of Mt. Pleasant,
John T. Chakeris, of Chakeris Law Firm, and Michael A.
Timbes, of Thurmond Kirchner Timbes & Yelverton, PA, both of
Charleston, for Respondents.
Horton, Inc., asks this Court to reverse the court of
appeals' decision in Smith v. D.R. Horton, Inc.,
403 S.C. 10, 742 S.E.2d 37 (Ct. App. 2013), affirming the
circuit court's refusal to compel arbitration between
Gregory and Stephanie Smith (collectively, the Smiths) and
D.R. Horton. We affirm.
Horton is a corporation specializing in residential
construction. In March 2005, the Smiths entered into a home
purchase agreement (the Agreement) with D.R. Horton for the
design and construction of a new home in Summerville, South
Agreement is organized into numbered paragraphs and lettered
subparagraphs, and sets forth the various responsibilities of
the parties prior to and immediately following
closing. Paragraph 14 of the Agreement is titled
"Warranties and Dispute Resolution, " and consists
of subparagraphs 14(a) through 14(j). Subparagraphs 14(c) and
14(g) contain provisions stating that the parties agree to
arbitrate any claim arising out of D.R. Horton's
construction of the home, as well as any disputes related to
the warranties contained in the Agreement. However, in the
majority of the remaining subparagraphs of paragraph 14, D.R.
Horton expressly disclaims all warranties for the
home-including the implied warranty of habitability-except
for a ten-year structural warranty. Moreover, subparagraph
14(i) stipulates that D.R. Horton "shall not be liable
for monetary damages of any kind, including secondary,
consequential, punitive, general, special or indirect
damages." (Emphasis in original). In August 2005, D.R.
Horton completed construction of the Smiths' home, and
the Smiths closed on the property and received the deed.
Thereafter, the Smiths experienced a myriad of problems with
the home that resulted in severe water damage to the
property. D.R. Horton attempted to repair the alleged
construction defects on "numerous occasions" during
the next five years, but was ultimately unsuccessful.
2010, the Smiths filed a construction defect case against
D.R. Horton and seven subcontractors. In response, D.R.
Horton filed a motion to compel arbitration. The Smiths
opposed the motion, arguing, inter alia, that the
arbitration agreement was unconscionable and therefore
circuit court denied D.R. Horton's motion to compel
arbitration, finding that the arbitration agreement was
unconscionable. The court based its ruling on "a number
of oppressive and one-sided provisions, " including D.R.
Horton's attempted waiver of the implied warranty of
habitability, as well as subparagraph 14(i)'s prohibition
on awarding money damages of any kind against D.R. Horton.
D.R. Horton made a motion to reconsider pursuant to Rule
59(e), SCACR, but the circuit court again denied the motion
Horton appealed, and the court of appeals affirmed the
circuit court's order. See Smith, 403 S.C. at
10, 742 S.E.2d at 37. The court of appeals found the
arbitration agreement was unconscionable, citing subparagraph
14(i) and its prohibition on awarding money damages against
D.R. Horton. Id. at 15, 742 S.E.2d at 40-41.
Further, the court of appeals sua sponte conducted a
severability analysis to determine whether subparagraph 14(i)
could be severed from the remaining provisions of the
arbitration agreement. Id. at 17, 742 S.E.2d at 41.
The court of appeals ultimately concluded that severing the
subparagraph would be inappropriate. Id.
Horton petitioned the court of appeals for rehearing,
asserting that the court of appeals made two fundamental
errors. First, D.R. Horton argued that the court of
appeals' unconscionability analysis was flawed because it
did not discuss whether the Smiths lacked a meaningful choice
in entering the arbitration agreement. See Simpson v. MSA
of Myrtle Beach, Inc., 73 S.C. 14');">373 S.C. 14, 24-25, 644 S.E.2d
663, 668 (2007) (stating that an unconscionability analysis
has two prongs, one of which is whether one of the parties to
the contract lacked a meaningful choice in agreeing to
arbitrate (citing Carolina Care Plan, Inc. v. United
HealthCare Servs., Inc., 361 S.C. 544, 554, 606 S.E.2d
752, 757 (2004); S.C. Code Ann. § 36-2-302(1) (1976))).
D.R. Horton asserted that the court of appeals' decision
violated the United States Supreme Court's holding in
Prima Paint Corp. v. Flood & Conklin Manufacturing Co.
See 388 U.S. 395, 406 (1967) (holding that courts may
only consider the threshold question of whether the
arbitration agreement is fraudulently induced and
thus invalid, not whether the contract as a whole is
invalid); see also S.C. Pub. Serv. Auth. v. Great W. Coal
(Ky.), Inc., 312 S.C. 559, 562-63, 437 S.E.2d 22, 24
(1993) (adopting a broad interpretation of Prima
Paint in South Carolina, and holding that "a party
cannot avoid arbitration through rescission of the entire
contract when there is no independent challenge to the
arbitration clause" (the Prima Paint
doctrine)). In D.R. Horton's view, the arbitration
agreement was contained exclusively in subparagraph 14(g),
and therefore, the court of appeals' consideration of the
allegedly one-sided terms in subparagraph 14(i) was
the court of appeals denied the petition for rehearing, and
we granted D.R. Horton's petition for a writ of
certiorari to review the court of appeals' decision.
the arbitration agreement is unconscionable?
determinations are subject to de novo review. Bradley v.
Brentwood Homes, Inc., 398 S.C. 447, 453, 730 S.E.2d
312, 315 (2012). However, a circuit court's factual
findings will not be reversed on appeal if any evidence
reasonably supports the findings. Id. at 453, 730
S.E.2d at 315.
The Prima Paint Doctrine
initial matter, we address D.R. Horton's argument
regarding the court of appeals' alleged failure to heed
the Prima Paint doctrine.
Prima Paint, the Supreme Court held that to avoid
arbitration, a party must assert a contractual defense to the
arbitration agreement itself, and not to the contract as a
whole. See 388 U.S. at 406. Thus, for example, a
party must allege that the arbitration agreement is
unconscionable, not that the entire contract is
unconscionable. See S.C. Pub. Serv. Auth., 312 S.C.
at 562-63, 437 S.E.2d at 24. Similarly, in conducting an
unconscionability inquiry, courts may only consider the
provisions of the arbitration agreement itself, and not those
of the whole contract.
the parties fundamentally disagree on the application of the
Prima Paint doctrine to the Agreement. D.R. Horton
asserts that the arbitration agreement is wholly contained in
subparagraph 14(g). Therefore, according to D.R. Horton, the
Court may not consider any of the remaining subparagraphs of
paragraph 14-such as subparagraph 14(i)'s damages
limitation-in determining whether the arbitration agreement
is unconscionable. We disagree.
the lower courts, we construe the entirety of paragraph 14,
entitled "Warranties and Dispute Resolution, " as
the arbitration agreement. As the title indicates, all the
subparagraphs of paragraph 14 must be read as a whole to
understand the scope of the warranties and how different
disputes are to be handled. The subparagraphs within
paragraph 14 contain numerous ...