Donald and Carlee Simmons v. Benson Hyundai, LLC

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Donald and Carlee Simmons, Respondents,

v.

Benson Hyundai, LLC, Appellant.

Appellate Case No. 2019-000344

Appeal From Spartanburg County
J. Derham Cole, Circuit Court Judge

Opinion No. 5900
Heard December 9, 2021 – Filed March 16, 2022

AFFIRMED AS MODIFIED

Bradford Neal Martin and Laura Wilcox Howle Teer,
both of Bradford Neal Martin & Associates, PA, of
Greenville, for Appellant.

E. Warren Moise, of Grimball & Cabaniss, LLC, of
Charleston, for Respondents.

HILL, J.: This appeal of an order denying Benson Hyundai, LLC's motion to
compel arbitration turns on whether Benson and Respondents Donald and Carlee
Simmons agreed to arbitrate their dispute over the sale of a car. Respondents sought
to buy a car from Benson and finance part of the cost. Benson had Respondents
execute a series of documents: a retail buyer's order worksheet, two retail buyer's
orders, a special delivery agreement, a retail installment sales contract (RISC), and
Benson's Arbitration Policies and Procedures (BAPP). The RISC and the BAPP
contained differing arbitration provisions. Respondents gave Benson a down
payment and other monies, traded their old car in, and left in the new one. When
Benson realized the final sales price was some $7,000 less than that listed on the
worksheet, it called Respondents and attempted to reform the sale based on the
mistake. When Respondents refused, Benson claims it agreed to honor the lower
price. After Benson was not able to assign the RISC to a suitable lender, it took the
position that the documents made clear Respondents would have to return the car if
the financing fell through. Respondents refused to return the car, and their monthly
payments based on the RISC were returned. There is no evidence Benson returned
the trade-in or the up-front monies Respondents tendered. When Respondents sued
Benson in circuit court over the sale, Benson moved to compel arbitration. The trial
court denied Benson's motion, concluding the arbitration provisions of the RISC and
the BAPP were so conflicting no meeting of the minds occurred, and therefore,
Benson and Respondents never formed an agreement to arbitrate, and even if they
did, the agreement was unconscionable. The trial court also found any contract was
illusory as Benson retained the discretion to approve the financing. Benson now
appeals. We affirm, finding the parties never formed an agreement to arbitrate but
for different reasons than the trial court.

I. Standard of Review

We review a trial court's ruling on a motion to compel arbitration de novo, but we
will not reverse factual findings of the trial court that are reasonably supported by
the record. Partain v. Upstate Auto. Grp., 386 S.C. 488, 491, 689 S.E.2d 602, 603
(2010). The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et. seq. (2018), commands
that arbitration agreements be treated the same as all other contracts—no more, no
less. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)
("[T]he purpose of Congress in 1925 was to make arbitration agreements as
enforceable as other contracts, but not more so."). Our supreme court has recently
returned the legal cliché that the law "favors" arbitration to its proper context,
reminding that "statements that the law 'favors' arbitration mean simply that courts
must respect and enforce a contractual provision to arbitrate as it respects and
enforces all contractual provisions. There is, however, no public policy—federal or
state—'favoring' arbitration." Palmetto Constr. Grp., LLC v. Restoration
Specialists, LLC, 432 S.C. 633, 639, 856 S.E.2d 150, 153 (2021).

II.

A. The FAA and Arbitration Agreement Formation

The FAA provides: "A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction . . . shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract." 9 U.S.C. § 2. The parties agree if they have an
arbitration agreement, the FAA applies to it. What they disagree about is whether
they agreed to arbitrate. Because arbitration under the FAA rests entirely upon
consent, it is always up to the court to determine if the parties have an agreement to
arbitrate. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489
U.S. 468, 478 (1989) ("[T]he FAA does not require parties to arbitrate when they
have not agreed to do so."). Arbitration may not be compelled unless the court is
satisfied "the making of the agreement for arbitration . . . is not in issue." 9 U.S.C §
4. The "making" or formation of—in the sense of the very existence of—the
agreement to arbitrate is always a question for the court, not the arbitrator. Granite
Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 296 (2010) (noting it is "well
settled that where the dispute at issue concerns contract formation, the dispute is
generally for courts to decide"); Henry Schein, Inc. v. Archer & White Sales, Inc.,
139 S. Ct. 524, 530 (2019) ("To be sure, before referring a dispute to an arbitrator,
the court determines whether a valid arbitration agreement exists."); Rowland v.
Sandy Morris Fin. & Est. Plan. Servs., LLC, 993 F.3d 253, 257–58 (4th Cir. 2021).
An arbitration agreement cannot prove itself, so a court necessarily must determine
if an agreement has been made according to law, for only then does the jurisdiction
of the FAA emerge and allow a court to stay the court action pursuant to § 3 and
compel arbitration pursuant to § 4. See Rau, Everything You Really Need to Know
About "Separability" in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 5
(2003) (observing that "one must enter into the [FAA] system somewhere" and the
idea that an arbitration clause can confirm itself—"'the product, apparently, of some
curious process of autogenesis'—is completely alien to our jurisprudence") (footnote
omitted); see also Horton, Infinite Arbitration Clauses, 168 U. Pa. L. Rev. 633, 647
& n.101 (2020).

In the FAA world, the issue of the formation of the arbitration agreement is quite
different from the issue of the validity of a concluded agreement, i.e. whether an
arbitration agreement that was formed is nevertheless invalid because of fraud,
duress, unconscionability, or some other defense to the enforcement of a contract.
Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70 n.2 (2010) ("The issue of the
agreement's 'validity' is different from the issue whether any agreement between the
parties 'was ever concluded . . . .'" (quoting Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1 (2006))). The United States Supreme Court has
held "courts should order arbitration of a dispute only where the court is satisfied
that neither the formation of the parties' arbitration agreement nor (absent a valid
provision specifically committing such disputes to an arbitrator) its enforceability or
applicability to the dispute is in issue." Granite Rock Co., 561 U.S. at 299.

Our first step, then, is to decide whether Benson and Respondents formed an
agreement to arbitrate. If we conclude they did not, the first step would also be the
last because the FAA cannot make parties arbitrate when they have not agreed to do
so. But if we conclude they did form an agreement to arbitrate, we would take the
second step: deciding whether the concluded arbitration agreement survives
Respondents' validity challenge (their claim the arbitration agreement is
unconscionable), assuming the parties have not delegated that issue to the arbitrator.
It is only at this second step that we apply the "separability" doctrine of Prima Paint.
388 U.S. at 403–04 (holding a court deciding motion to compel arbitration may only
consider validity challenges that are specific to the concluded arbitration agreement,
and in doing so, must separate the arbitration agreement from remainder of contract;
if court is satisfied arbitration agreement is valid, § 4 requires that any challenges to
the validity of the underlying, broader contract in which the arbitration clause is
contained must be heard by arbitrator).

The two-step sequence can be summarized as follows: (1) resolution of any
challenge to the formation of the arbitration agreement, consistent with Granite
Rock, and (2) determining whether any subsequent challenges are to the entire
agreement or to the arbitration clause specifically, consistent with Prima Paint. See
Solymar Invs., Ltd. v. Banco Santander S.A., 672 F.3d 981, 990 (11th Cir. 2012)
(describing two-step process and explaining that "Granite Rock's threshold inquiry
of whether a contract was formed necessarily precedes" the "determination of
whether any subsequent challenges are to the entire agreement, or to the arbitration
clause specifically" under the severability principle); see also In re StockX Customer
Data Sec. Breach Litig., 19 F.4th 873, 879–80 (6th Cir. 2021) (adopting similar two-
step process and noting that "even where a delegation provision purports to require
arbitration of formation issues, the severability principle does not apply and courts
must decide challenges to the formation or 'existence of an agreement in the first
instance ("whether it was in fact agreed to" or "was ever concluded")'" (quoting VIP,
Inc. v. KYB Corp. (In re Auto. Parts Antitrust Litig.), 951 F.3d 377, 386 (6th Cir.
2020))); accord MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds,
974 F.3d 386, 400–02 (3d Cir. 2020) (collecting cases).

Having settled the ground rules, we now proceed to the first step: deciding if the
parties have an agreement to arbitrate, which we decide applying South Carolina
contract law. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
Under South Carolina law, a contract cannot be formed without a meeting of the
minds between the parties as to all essential and material terms. Player v. Chandler,
299 S.C. 101, 105, 382 S.E.2d 891, 893 (1989). The parties must also "manifest a
mutual intent to be bound." Stanley Smith & Sons v. Limestone Coll., 283 S.C. 430,
433, 322 S.E.2d 474, 477 (Ct. App. 1984).

B. The Parties' Transaction

Benson presses several sophisticated arguments as to why it has an agreement to
arbitrate with Respondents. The condensed version is that Benson believes only the
BAPP arbitration provision is binding, and therefore the trial court erred in finding
a conflict between the arbitration provisions of the RISC and the BAPP. According
to Benson, the arbitration provision contained in the RISC was never effective
because Benson never signed the RISC and the RISC was conditioned on its being
assigned to a third party financier. Alternatively, Benson argues the BAPP was the
last document signed, and due to the doctrines of contract modification and merger,
the arbitration provision of the RISC was discharged and the BAPP became the only
surviving arbitration agreement.

We do not need to test all these angles, for this appeal may be decided on a straighter
plane of basic contract formation. See Rule 220(c), SCACR (appellate court may
affirm for any reason appearing in the record). The special delivery agreement states
Benson will attempt to assign the RISC on terms satisfactory to Benson, and if the
assignment is successful, "the [RISC] (and all other documents executed by Buyer)
shall be deemed delivered and fully binding." Because the assignment never
occurred, the parties never became bound by any of the other documents, including
the arbitration provisions of the RISC and the BAPP. See Hughes v. Edwards, 265
S.C. 529, 536, 220 S.E.2d 231, 234 (1975) ("There can be no contract so long as, in
the contemplation of the parties thereto, something remains to be done to establish
contract relations."); 1 Williston on Contracts § 3:5 (4th ed. 2021) ("[I]f the parties
to an agreement specifically provide that no legal obligation is thereby created, that
provision will be respected by the law, to the same degree that any other term of
their agreement would be . . . ."). The Montana supreme court reached the same
conclusion in the context of a motion to compel arbitration involving very similar
documents. Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, Inc., 185 P.3d
332, 340 (Mont. 2008) (holding buyer's order and RISC in transaction for sale of car
that stated no binding contract was created until obtaining satisfactory financing was
condition precedent to formation of contract, including arbitration provisions). We
must enforce the special delivery agreement as written, "regardless of its wisdom or
folly, apparent unreasonableness, or the parties' failure to guard their rights
carefully." Ellis v. Taylor, 316 S.C. 245, 248, 449 S.E.2d 487, 488 (1994).
We have held car transactions like the one structured by the documents here—
whereby the consumer accepts conditional delivery of the car but the entire deal is
expressly conditioned on the dealer's satisfactory assignment of the financing—do
not amount to enforceable contracts if the assignment fails. Brewer v. Stokes Kia,
Isuzu, Subaru, Inc., 364 S.C. 444, 451, 613 S.E.2d 802, 806 (Ct. App. 2005). The
special delivery agreement declared the parties' intent to not be bound if the
assignment of the financing failed. When it failed, so did the formation of the parties'
arbitration agreement. Brewer permits a dealer to draft transaction documents in
such a way as to hedge its bets. 364 S.C. at 451-52, S.E.2d at 807. As long as the
conditional nature of the contract is explained openly and transparently (and the
covenant of good faith and fair dealing complied with), these deals are not
considered the type of "yo-yo sales" forbidden by Singleton v. Stokes Motors, Inc.,
358 S.C. 369, 381–82, 595 S.E.2d 461, 467–68 (2004). This transparency also
allows a court to see, as we do here, that while it may seem everyone to the
transaction was nodding about arbitration, in the end no one agreed to it. Because
no agreement to arbitrate was formed, we have no need to proceed to the second step
of the analysis.

Nor do we need to consider, as an additional sustaining ground, the trial court's
finding that the entire contractual arrangement was illusory. We do point out,
though, that the illusion question is properly framed as asking whether a contract
fails because at least one side's promise to perform was illusory, negating the mutual
intent to be bound. The classic example involves a situation where both parties'
promises are illusory and was given over four centuries ago by John Selden (who
John Milton thought the most learned man of his age):

Lady Kent articled with Sir Edward Herbert that he should
come to her when she sent for him, and stay with her as
long as she would have liked him, to which he set his hand;
then he articled with her that he should go away when he
pleased and stay away as long as he pleased, to which she
set her hand.

1 Corbin on Contracts § 1.17 (rev. ed. 2018) (quoting John Selden, Table Talk).

The ruling of the distinguished trial court denying Benson's motion to compel
arbitration is therefore

AFFIRMED AS MODIFIED.
KONDUROS and HEWITT, JJ., concur.