Arbitration – Membership Agreements – Unlawful Statute of Limitations Period

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A Palmetto Bluff resort-community arbitration clause was unenforceable because the parties did not clearly delegate arbitrability issues to an arbitrator and the provision’s 60-day deadline for initiating arbitration unlawfully shortened the statute of limitations, rendering the clause unconscionable.

The South Carolina Supreme Court affirmed, as modified, lower court rulings denying a motion to compel arbitration in a dispute between property owners and the developers and operators of the luxury Palmetto Bluff resort community.

The litigation arose after Palmetto Bluff began restricting and ultimately prohibiting short-term rental guests from accessing club amenities, prompting property owners to sue over the changes. Palmetto Bluff sought to force the dispute into arbitration under membership agreements signed by property owners when purchasing property in the community.

The court first held that the Federal Arbitration Act applied because the transactions involved interstate commerce. The record showed that several property owners resided outside South Carolina when they purchased their properties, and the owners marketed short-term rentals through nationwide online platforms. The court found that the interstate nature of the property purchases, rental advertising and related financial transactions brought the agreements within the scope of the FAA.

Despite the FAA’s applicability, the court rejected Palmetto Bluff’s argument that an arbitrator, rather than a court, should determine whether the arbitration provision was enforceable. Palmetto Bluff relied on language incorporating American Arbitration Association rules, which generally authorize arbitrators to decide issues of arbitrability. The court concluded, however, that the membership agreements also expressly stated they were subject to South Carolina’s Uniform Arbitration Act and South Carolina law. Those provisions indicated the parties intended South Carolina procedural arbitration rules to govern, including rules requiring courts to decide gateway questions such as unconscionability and enforceability. As a result, the court found there was not the “clear and unmistakable” evidence necessary to delegate arbitrability questions to an arbitrator.

The court further agreed that the arbitration provision was unconscionable and therefore unenforceable. A key factor was a clause requiring parties to provide written notice of an arbitration demand within 60 days after mediation concluded. The court held that provision effectively shortened applicable statutes of limitation and conflicted with South Carolina law, which prohibits contractual provisions that reduce legally prescribed limitations periods. Relying on its recent decision in Huskins v. Mungo Homes, the court found the provision violated public policy because it imposed an impermissibly abbreviated deadline for asserting claims.

Because the parties did not clearly delegate arbitrability issues to an arbitrator and because the arbitration provision contained an unlawful limitation period that rendered it unconscionable, the Supreme Court upheld the denial of Palmetto Bluff’s motion to compel arbitration, allowing the property owners’ claims to proceed in court.

Affirmed as modified.

315 Corley CW LLC v. Palmetto Bluff Development (Lawyers Weekly No. 010-024-26, 7 pp.) (Per Curiam) Kirsten Elena Small, of Greenville, Val H. Stieglitz III, of Columbia, and Robert Bruce Wallace, of Charleston, all of Maynard Nexsen, PC; Douglas Walker MacKelcan III, of Copeland, Stair, Valz & Lovell, LLP, of Charleston; and Donald Falk, of Schaerr Jaffe, LLP, of San Francisco, California, all for Petitioners. Ian Scott Ford, Ainsley Fisher Tillman, and Robert Edward Byrd, all of Ford Wallace Thomson, LLC, of Charleston, for Respondents. Robert Walker Humphrey II, of Willoughby Humphrey & D’Antoni, P.A., of Charleston, as Amicus Curiae for Public Investors Advocate Bar Association. Jennifer Hess Thiem and Tre A. Holloway, of K&L Gates, LLP, of Charleston, as Amicus Curiae for South Carolina Restaurant and Lodging Association. South Carolina Supreme Court