Arbitration – Warranty Rights – Direct Benefits Estoppel

A downstream purchaser asserting UCC warranty claims against U.S. Pipe and Foundry Company, LLC was not bound by the manufacturer’s arbitration clause contained in its contract with distributors because the purchaser neither agreed to nor relied on that contract.

We affirmed the circuit court’s denial of arbitration.

This case centered on whether an arbitration clause contained in US Pipe’s “Terms and Conditions of Sale,” which governed transactions between US Pipe and its distributors, could bind a downstream purchaser, Greenville Water, asserting warranty claims for allegedly defective ductile iron pipes.

US Pipe manufactures water and wastewater infrastructure products, including ductile iron pipes with cement mortar lining. Distributors TEC Utility Supply Inc. and Hayes Pipe Supply Inc. purchased these pipes from US Pipe subject to US Pipe’s online Terms and Conditions of Sale, which included warranty provisions and an arbitration clause. Greenville Water later purchased the pipes through these distributors between October 2022 and May 2023 for use in a construction project. The distributors’ own sales documents disclaimed warranties and indicated that any applicable warranty would come from the manufacturer. However, the distributors’ terms did not reference US Pipe’s Terms and Conditions or include any arbitration provision. After installation, Greenville Water alleged that the pipe lining failed to meet industry standards and filed suit asserting claims including breach of express and implied warranties under the South Carolina Uniform Commercial Code (UCC), breach of implied contract, violations of the South Carolina Unfair Trade Practices Act, and unjust enrichment.

US Pipe moved to compel arbitration, arguing Greenville Water, although not a direct contracting party, was bound by the arbitration clause because the UCC allows warranty rights and their associated limitations to extend to downstream purchasers. The circuit court rejected this argument and found no arbitration agreement existed between the parties.

We agreed that while UCC warranty rights may extend beyond privity to downstream purchasers, the statute only carries forward warranty limitations or remedy restrictions that accompany the goods when they enter the marketplace. Arbitration provisions, the court explained, do not constitute remedies; rather, they designate the forum in which disputes are resolved. Because arbitration is not a limitation on remedies, the arbitration clause contained in the manufacturer–distributor contract did not automatically bind Greenville Water as a downstream purchaser asserting statutory warranty rights.

We also rejected US Pipe’s argument that the doctrine of direct benefits estoppel should compel arbitration. That doctrine applies when a non-signatory seeks to enforce or rely on the terms of a contract containing an arbitration clause. Here, Greenville Water’s claims were based on statutory UCC warranties, a certificate of compliance issued by US Pipe, and the company’s marketing representations, not the Terms and Conditions of Sale governing US Pipe’s relationship with the distributors. Because Greenville Water did not rely on or attempt to enforce that contract, it could not be required to accept its arbitration clause.

Affirmed.

Commissioners of Public Works of the City of Greenville, South Carolina v. United States Pipe and Foundry Company, LLC (Lawyers Weekly No. 012-012-26, 8 pp.) (Per Curiam) Appealed from Greenville County Circuit Court (Perry H. Gravely, J.) C. Mitchell Brown, and Matthew A. Abee, both of Nelson Mullins Riley & Scarborough, LLP, of Columbia; Beattie B. Ashmore, of Beattie B. Ashmore, PA, of Greenville; and Paul G. Joyce, of Buffalo, New York; all for Appellant. Adam Crittenden Bach, of Tonnsen Bach, LLC, of Greenville; Justin J. Hawal, of Mentor, Ohio; Jessica Holmes, of Chicago, Illinois; Daniel Rock Flynn, of Chicago, Illinois; Adam J. Levitt, of Chicago, Illinois; and John Hampton Scully, of Greenville; all for Respondent. South Carolina Court of Appeals Unpublished