South Carolina Court of Appeals Reverses Trial Court Ruling Permitting Class Action Arbitration Against Automobile Dealer

August 26, 2020 - Robert L. Reibold
Automobile dealers and other businesses often employ arbitration agreements in contracts with their customers. One recurring question about these arbitration agreements is whether they permit class action arbitration or instead only allow for individual arbitration – especially where a particular arbitration agreement is silent regarding class arbitration. The difference can be significant. In a class arbitration, hundreds or thousands of claims can be adjudicated in a single proceeding, and, if an award results against the dealership or business, the size of the award naturally increases dramatically.

The original position taken by South Carolina courts was that class wide arbitration was permissible if the arbitration agreement was silent regarding class arbitration. Bazzle v. Green Tree Fin. Corp., 351 S.C. 244, 569 S.E.2d 349 (2002). Since the decision in Bazzle, federal courts, including the United States Supreme Court, have addressed this issue. South Carolina courts have also addressed the topic in a number of unpublished decisions, which do not constitute a binding precedent.
  
In Grant v. Jud Kuhn Chevrolet, South Carolina courts have now come full circle. Grant involved a customer’s claim against an automobile dealership alleging that the dealership charged an improper closing fee. The claim was asserted under South Carolina’s Dealer’s Act, S.C. Code § 56-15-40 et seq., and the customer sought double actual damages, treble punitive damages, and attorney’s fees. The dealership moved to compel arbitration under an arbitration clause, which the South Carolina Court of Appeals determined was silent regarding class arbitration. The trial court ordered arbitration but allowed class arbitration.
 
The South Carolina Court of Appeals reversed the trial court’s order. It held that:

  • courts may not infer consent to class arbitration without some affirmative contractual basis for concluding that the party agreed to class arbitration;

  • consent to class arbitration cannot be inferred from provisions of the Dealers Act which authorize class action suits against automobile dealers; and

  • consent to class arbitration cannot be inferred from the agreement’s use of the American Arbitration Association to conduct the arbitration.

Unless the customer seeks review by the South Carolina Supreme Court, the case will now proceed as a single arbitration.
 
Grant is a published opinion, and therefore a binding expression of South Carolina law. The full opinion is available here.
 
Please contact Rob for additional information.