Can an Arbitration Award be Appealed? Vacatur, Manifest Disregard, and the Waldo Case in SC

Arbitration is by usually binding, meaning the arbitrator’s decision is final and the parties must legally abide by it. Since arbitration is type of Alternative Dispute Resolution that happens outside the judicial system, courts are reluctant to “vacate” an arbitrator’s decision. Most of the time, the decision stands.

But in rare instances, an arbitration award can be vacated. Federal and state law provide some limited statutory grounds for vacatur, which we’ll cover below.

In addition, some jurisdictions allow for vacatur due to “manifest disregard of the law.” South Carolina does recognize the high standard of “manifest disregard of the law” as valid grounds for vacating an arbitration award, as was reaffirmed by the SC Supreme Court in the Andrew Waldo v Michael Cousins (2024) decision.

Let’s look at this issue more closely.

Statutory Grounds for Vacating a Decision Made in Arbitration

Many states, including South Carolina, base state laws regarding arbitration on the Federal Arbitration Act (FAA), first enacted in 1925. Found in Title 9 of the U.S. Code, Section 10 lays out the following limited grounds for vacating an award:

Corruption, fraud, or undue means
Evident partiality or corruption of the arbitrator(s)
Misconduct of the arbitrator(s)
Arbitrator exceeding powers or failing to issue a definite and final decision

The South Carolina Uniform Arbitration Act, found in SC Code Title 15, Chapter 48, contains essentially the same grounds for vacatur as the FAA above, with the addition of a fifth:

An award may be vacated if there was no arbitration agreement, the matter was not adversely determined under Section 15-48-20, and the party property objected

Vacatur of an arbitration award on statutory grounds is relatively rare. So is vacatur on the basis of the judicial concept of “manifest disregard of the law.”

“Manifest Disregard of the Law” as Judicial Grounds for Vacatur

Manifest disregard of the law occurs when an arbitrator knows the relevant, applicable law but deliberately ignores it. This is different from an error of law or ignorance of the law, which are not grounds for vacatur.

Manifest disregard of the law is not considered valid grounds in all jurisdictions, which makes the SC Supreme Court’s 2024 Waldo decision notable.

The facts, briefly

Michael Cousins is the broker in charge of a realty company that represented National Golf Management, LLC (NGM) as sellers in a transaction. The buyers were represented by a realty company where Andrew Waldo is the broker in charge.

In a subsequent transaction, Waldo represented the buyers again when purchasing 13 golf courses from NGM. Cousins didn’t have a written agreement with any party in this deal, and he didn’t get a commission from it.

Cousins and his company then brought suit against several parties seeking a commission. Cousins, Waldo, and an agent at Waldo’s company entered into arbitration, as they were required to do as members in a local realtor association.

Legal action and arbitration

Should Cousins be awarded a commission for the transaction? The decisions went back and forth:

The arbitration panel ruled that Cousins was entitled to half of the commission earned in the deal
Upon appeal, a Master-in-Equity vacated the award
Upon further appeal, the court of appeals reversed the Master
Finally, the SC Supreme Court reversed the court of appeals and vacated the award

In its opinion, the supreme court starts by “acknowledging – and reaffirming – the rare and narrow basis upon which we may disturb an arbitration award.”

However, if a claim is made that the arbitrator failed to follow the controlling law, then it must be shown that the arbitrator knew of “well-defined, explicit, and clearly applicable controlling law” but “still refused to apply it.” The court has held that in these situations, “the arbitrator exceeded his power by manifestly disregarding or perversely misconstruing the law governing the dispute.”

This high standard is only met when it’s “intentional” or “reckless flouting” of the law – not simply an error of interpretation. In this particular case, Waldo argued that the arbitration panel manifestly disregarded statutes governed by real estate agency law; the court agreed.

1. Did the Arbitrators Apply Relevant and Applicable Law? No.

Cousins argued that he acted as a “cooperating broker” with the buyer’s agent and was therefore entitled to a commission based on an “implied contract.” But under South Carolina law pertaining to the SC Real Estate Commission, Act 24 (1997) and Act 218 (2004), a written agreement with a buyer or seller is required for a broker (including a cooperating broker, or subagent) to be entitled to a commission. Cousins did not have one.

Cousins also argued that previous cases recognized the realtor’s right to commission through oral or implied contract. However, these cases were decided before the Acts went into effect, and the law states that the statute’s provisions supersede the common law when the two are inconsistent. (See: Title 40, Chapter 57 of the SC State Code.)

The law is clear: Cousins needed a written agreement in order to be entitled to a commission, and he did not have one. The arbitration panel did not apply this law in its decision.

2. Was There Evidence of Manifest Disregard? Yes.

Demonstrating that the arbitrators did not follow controlling law is one part of applying manifest disregard of the law. Far more difficult is proving that the arbitrator had knowledge of the controlling law but ignored it.

In the Waldo case, the record clearly showed that the arbitrators were aware of relevant and applicable law. They knew of the Acts referenced above and had a circuit court order dismissing similar claims from the same transaction on the grounds that oral and implied contracts in for real estate commissions were unenforceable under the Acts.

The arbitrators ignored the law in favor of focusing on “the procuring cause,” which the chairman brought up in the arbitration hearing. Under this theory, the agent or broker may be entitled to a commission if it can be shown that he or she was the initial cause of the chain of events that led to the transaction, even if he or she did not finalize the deal at the end. Courts recognized this reasoning in some prior cases even in the absence of a written agreement. But the statute is now clear that a written agreement is required, procuring cause or not.

“The Legal End Is Not a Lawless One”: Final Words of the Court

In summary, the record showed the arbitrators knew of the relevant law yet chose to ignore it. The supreme court reversed the court of appeals’ opinion, the award was vacated, and Cousins received no commission.

It’s worth reading some of the court’s musings on the nature and goal of arbitration towards the end of its opinion:

“Arbitration rests on consent of the parties, where parties freely exchange the expansive litigation rights court actions provide for the speed, informality, and finality arbitration promises. But when parties calculate the benefits and risks of their exchange, they do not bargain to have their dispute resolved by whim. Arbitration is designed to be the end, not the beginning, of legal wrangling, and our strict manifest disregard standard for vacatur honors this design by ensuring the legal end is not a lawless one.”

Help with Contracts, Business Law, and More – The Gem McDowell Law Group

If you’re a business professional who needs legal help or strategic advice to help grow and protect your company, call business attorney Gem McDowell. Gem and his team work with business owners and other professionals across South Carolina from their offices in Myrtle Beach and Mount Pleasant. They can help with buying, selling, starting, and growing your business; create and review contracts, arbitration agreements, and corporate governance documents; and provide strategic advice to help you avoid mistakes and protect your interests.

Call Gem and his team today to schedule your free initial consultation at 843-281-1021.

What Makes an Arbitration Agreement Unenforceable?

UPDATE 03/04/25: Some sections below have been revised to reflect the Supreme Court of South Carolina’s decision in Huskins v. Mungo Homes (2024).

Originally published April 22, 2024:

Is it easy to get out of arbitration in South Carolina? That’s the question we’ll look at today.

Arbitration agreements and clauses are ubiquitous these days, from employment contracts to online End-User License Agreements. Arbitration is often touted as being a faster, less expensive, and more private alternative to civil lawsuits and civil court. But arbitration agreements can put individuals at a disadvantage by requiring them to waive their rights or burden them with lopsided terms. This may prompt them to try to get out of arbitration.

Maybe you’re a customer or consumer who doesn’t want to be bound to arbitration. Or maybe you’re a business owner or professional who wants to ensure the arbitration agreements in your contracts are enforceable. Whatever your situation, you should understand when arbitration is enforced and when it’s not in South Carolina so you can better look after your own interests.

First we’ll look at what makes a contract enforceable and unenforceable in South Carolina, then dive into some cases to see how these issues played out in the courts.

Are Arbitration Agreements Always Binding in South Carolina?

Generally yes, but occasionally no.

Valid arbitration agreements are enforceable in South Carolina. In the 2020 case Weaver v. Brookdale Senior Living, Inc. (which we’ve previously covered here), the South Carolina Court of Appeals stated that there is “potent” public policy favoring arbitration when the terms are entered into validly.

What constitutes a valid and enforceable contract in South Carolina? To start, parties signing the contract must have the authority and capacity to understand and enter into such an agreement. The contract also must:

Be mutually agreed upon
Be freely entered into
Include “consideration,” an exchange of values between the parties, such as money or the promise of a service
Not violate public policy

Since South Carolina courts view and treat arbitration agreements as they do any other part of a contract, these same standards apply.

In short, there’s no way to “get out” of a valid arbitration agreement in South Carolina.

Reasons an Arbitration Agreement May Be Unenforceable (Or, How to Get Out of Arbitration)

Arbitration agreements are not enforceable in South Carolina if they are not valid. Arbitration clauses within a contract may also be found to be unenforceable.

Reasons an arbitration agreement may found to be unenforceable (this list is not exhaustive):

Absence of signature
Fraud
Duress or coercion
Lack of authority to sign the agreement
Lack of capacity (aka sound mind)
Lack of mutual agreement
Lack of consideration
Violation of public policy
Unconscionability
Unclear language

Proving an arbitration agreement is unenforceable can be difficult, but it does happen. Next we’ll look at cases where arbitration agreements were successfully challenged in court.

Lack of Authority to Enter into Arbitration Agreement without Power of Attorney: Solesbee

In some cases, the enforceability of an arbitration agreement comes down to small details. That’s what happened in the 2022 South Carolina Court of Appeals case The Estate of Mary Solesbee v Fundamental Clinic (read it here).

The Background

Mary Solesbee entered Magnolia, a skilled nursing facility in Spartanburg County, in June 2016. Her son, Allen Dover, signed the admission agreement and a separate arbitration agreement when she was admitted. On July 14, 2016, Solesbee was transported to a hospital, where she died two weeks later.

Connie Bayne, Solesbee’s personal representative, then filed a wrongful death and survival action alleging nursing home negligence for actual and punitive damages. In response, Magnolia filed a motion to compel arbitration.

The trial court denied the motion to compel arbitration, finding that Dover did not have the authority to sign the arbitration agreement on behalf of his mother and rendering it invalid. On appeal, the SC Court of Appeals agreed with the trial court’s decision to deny Magnolia’s motion to compel arbitration.

The Details

The appeals court determined that the admission agreement and the arbitration agreement were two separate documents. Magnolia argued that the court should have found the two were merged, since merger is usually presumed when multiple documents are signed by the same parties at the same time as part of the same transaction.

But the court says that’s not always so. It found that the two documents were indeed separate because:

The admission agreement provided it was governed by South Carolina law, while the arbitration agreement provided it was governed by federal law
The arbitration agreement referenced the admission agreement, showing it was conceived of as a separate document
Each document was separately paginated with its own signature page

Additionally, the arbitration agreement was not a requirement for admission to Magnolia.

This matters because Bayne (Solesbee’s representative who brought the suit) argued that Dover (her son) did not have the authority to sign the arbitration agreement on his mother’s behalf. He did not have power of attorney for his mother at the time (and had only briefly possessed such powers years earlier before they were revoked) and did not have the authority to sign under any other legal theory.

He did, however, have the authority to sign the admission agreement under South Carolina’s Adult Health Care Consent Act. This act is limited to making health care related decisions only, and therefore did not give Solesbee’s son the power to sign the separate arbitration agreement.

Ultimately, because of how Magnolia wrote and structured its contracts, the court found that it could not compel arbitration.

Other Examples of Unenforceable Arbitration Agreements in South Carolina

Here are brief overviews of three other South Carolina cases in which arbitration agreements or sections were found to be unenforceable.

Lack of Authority Even with Power of Attorney: Arredondo

In Arredondo v. SNH SE Ashley River Tenant, LLC (2021), the South Carolina Supreme Court found that a daughter did not have the authority to sign an arbitration agreement on behalf of her father, despite being his agent under both a health care power of attorney and a general durable power of attorney. This case came down to the very specific wording in the powers of attorney, and it demonstrates how enforceability of a contract can hinge on language and word choice.

(The daughter also contended that the agreement was unconscionable and therefore unenforceable, but the court did not address this issue.)

Read more in detail about powers of attorney and the full story behind Arredondo in our blog on this case here.

Lack of Authority Due to Timing: Stott v White Oak Manor

In Stott v White Oak Manor, Inc. (2019), the South Carolina Court of Appeals found that a niece did not have the authority to sign an arbitration agreement on behalf of her uncle. There are two important elements in this case: One, capacity. The uncle possessed “intact mental functioning” at the time of his admission into a medical facility and therefore had the capacity to enter into agreements himself. Two, timing. A power of attorney that would have given the niece authority to enter into the agreement on his behalf was not recorded – and therefore not valid – until six days after her uncle was admitted to the facility.

Read more in detail about the background and the court’s reasoning in our blog on Stott here.

Violation of Public Policy: Huskins v Mungo Homes (2024)

The Supreme Court of South Carolina ruled that the arbitration agreement in the purchase agreement signed by the Huskins when buying a new home from Mungo was unenforceable because it included terms that violated public policy and were therefore unenforceable, regardless of whether they were unconscionable.

Previously, South Carolina courts would have likely severed the offending terms and allowed the rest of the agreement to stand, as the SC Court of Appeals had done in 2022. However, in its 2024 Huskins decision, the supreme court stated that SC courts should no longer sever terms from an agreement lacking a severability clause.

Read more about this important decision about adhesion contracts here on our blog.

Unconsiconability: Damico v. Lennar Carolinas, LLC (2022)

The Supreme Court of South Carolina found the terms in the contracts between homebuilder Lennar Carolinas, LLC and several homebuyers (including Patricia Damico) unfairly favored Lennar to the point of being unconscionable and were therefore unenforceable. For something to be considered “unconscionable,” it must contain two elements: 1. The absence of meaningful choice, and 2. Oppressive and one-sided terms.

Read the court’s Damico decision here and read more about unconscionability in SC here on our blog.

Unconscionability: Huskins v Mungo Homes

In Huskins v Mungo Homes (2022), the South Carolina Court of Appeals found that a portion of an arbitration clause within a purchase agreement was unconscionable and therefore unenforceable. It found the offending terms were absent of meaningful choice and were oppressive and one-sided, making them unconscionable.

Importantly, only the offending portion was severed from the clause, leaving the rest of the arbitration clause enforceable, and the court affirmed the circuit court’s order to compel arbitration under the newly modified terms.

~~Read more in detail about the background of this case and about unconscionability in our blog on Huskins v Mungo Homes here.~~

Understanding Arbitration and Reserving Your Rights

The examples of cases above show just how challenging it can be to get out of arbitration in South Carolina.

As a consumer, customer, or patient, you need to understand that the majority of the time, you are bound to arbitration when you agree to it. However, it’s not a given that you must agree; many contracts and agreements online allow you to opt out in writing within (typically) 30 days of signing the agreement. The next time you encounter a wall of text online that tells you to click the “I Agree” button, first look in the fine print for instructions on how to opt out of compelled arbitration and reserve your rights.

As a business owner or professional drafting an arbitration agreement or arbitration clause, you should know that the enforceability of your agreement can come down to terms, word choice, and other seemingly small details. It’s also important to ensure that the parties signing your agreement have the authority to do so.

Get Help with Contracts and Business Law in South Carolina

For help drafting or understanding arbitration agreements, employment contracts, and other contracts, contact Gem at the Gem McDowell Law Group. With over thirty years of experience, Gem along with his team helps South Carolina business owners grow their businesses and protect their interests and can represent individuals in contract disputes. Call to schedule your free consultation today at the Mount Pleasant office or Myrtle Beach office by calling 843-284-1021 today.