All doughnut hole and no doughnuts

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One of the great ironies of our justice system is that arbitration clauses are inserted into contracts ostensibly to keep any subsequent disputes out of litigation, but the clauses are themselves frequently and ferociously litigated. Sometimes these arguments over arbitration clauses can be quite creative and innovative, as Sidebar was recently reminded in a fascinating decision from the South Carolina Court of Appeals.

In the case, the litigants were arguing over an arbitration clause in which the parties—a group of healthcare providers and a woman whose foot was amputated, allegedly as a result of medical malpractice—had agreed to resolve any disputes through arbitration. The clause defined a “dispute” as “any claim … totaling $50,000 individually or in the aggregate.” Any claims for less than $50,000 were deemed not to be disputes.

The plaintiff argued that the clause thus applied only to claims or disputes of exactly $50,000, no more and no less. Somewhat surprisingly, the circuit court agreed with this oddly specific interpretation and ruled in the plaintiff’s favor, but in an Oct. 6 opinion, the Court of Appeals unanimously reversed and remanded the case.

Judge Blake Hewitt, writing for the court and very clearly not buying what the plaintiffs were selling, said that the case presented “the odd but familiar situation where opposing parties pitch different interpretations of a writing while also arguing the writing is unambiguous.” But he went on to find that the plaintiff’s preferred reading of the clause couldn’t hold up when viewing the agreement as a whole, and would result in an idiosyncratic agreement that didn’t remotely accomplish its own stated purpose.

“Putting aside the practical question of how one would enforce a contract binding someone to arbitrate claims with precisely $50,000 in controversy—could a plaintiff simply plead damages of one cent more or less and completely avoid arbitration?—the agreement’s purpose was directly advertised as covering all disagreements, not discussing some and ignoring others,” Hewitt wrote. “We are convinced the right approach is to read the agreement as comprehensive. We do not think it is sensible to read it as an agreement that is all donut-hole and no donut.”

It was certainly a valiant effort by the plaintiff in the case. But sometimes you make a creative argument for how a contract should be read, and the judges simply … donut agree.

D.D.